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Strategies for situation in fragmented industries for Global Strategic Management Mcom sem 3 Delhi University

Strategies for situation in fragmented industries for Global Strategic Management Mcom sem 3 Delhi University

Out of four types of industry situations, we have discussed about first two types of situations in the previous lesson such as emerging industry and maturing industry situations. The other two situations will be dealt with in this lesson. These two industry situations are (a) declining industry situation and (b) fragmented industry situation.Strategies for situation in fragmented industries for Global Strategic Management MCOM sem 3 Delhi University.

Strategies for situation in fragmented industries for Global Strategic Management MCOM sem 3 Delhi University

Strategies for situation in fragmented industries for Global Strategic Management MCOM sem 3 Delhi University

Declining Industry and Strategies
Meaning of Declining Industry
An industry is said to be a declining industry where demand for products of the industry grows more slowly than the economy-wide average. In declining industry, the demand continues to go down. Examples of  declining industry in Bangladesh include pottery industry, jute industry, textiles industry and silk industry. Strategies for situation in fragmented industries for Global Strategic Management MCOM sem 3 Delhi University.
Situations That Prevail in a Declining Industry
In a declining industry growth in demand and profitability goes down continuously. There are many reasons for continuous declining tendency in the demand for products. Major reasons are changes in the tastes and preferences of customers, emergence of sophisticated technology in the industry that has ushered in new uses of products, or customers have become tired of using the same types of products for a long period of time, or substitute products have entered into the market with high
success. Profitability goes down mainly due to slackened demand for products and very high competition among the producers.
Strategic Options in a Declining Industry
In a declining industry several strategic options are available to the managers. We discuss them below:

Harvesting Strategy:
A firm in a declining industry may choose to employ harvesting strategy to earn maximum possible amount of cash from the business. This  strategy involves sacrificing market position in return for bigger nearterm cash flows or current profitability. When a firm adopts harvesting strategy, it cuts down the budget substantially, reinvestment is rarely made, new equipments are not purchased rather old ones are used as long as possible, and priority is given on the extensive use of existing facilities of the firm. To obtain greater cash flows, advertising expenses are cut down, quality is reduced carefully and less-essential customer services are curtailed.   Strategies for situation in fragmented industries for Global Strategic Management MCOM sem 3 Delhi University.

Divestiture Strategy:
Another strategic option to a firm in a declining industry is to sell it out. The firm may divest or sell off a portion of its assets like equipment, land, stock of materials, etc. the cash proceeds can be used for improving the core business. Or, the firm may dispose off the business entirely.
Niche or Focus Strategy:
Any industry, whether emerging or maturing or declining, may have  several niches (small segment of a market which remains generally unserved or inadequately served by competitors.). A firm in declining industry can look for niche markets where it can operate business profitably. Some of these niche markets may be growing in spite of
stagnation in the industry as a whole. Strategies for situation in fragmented industries for Global Strategic Management MCOM sem 3 Delhi University.

Strategies for situation in fragmented industries for Global Strategic Management Mcom sem 3 Delhi University

Differentiation Strategy:
A firm can place more emphasis on differentiation of products based on  quality improvement and innovation. Differentiation can rejuvenate demand through alluring customers to the firm’s products. Innovationbased differentiation is also helpful for a firm in a stagnant/declining industry to survive easy imitation by the competitors.
Low-Cost Strategy:
A firm may also follow low-cost strategy by driving costs down. If the costs can be reduced on a continuous basis in an innovative way, it can help the firm improve the firm’s profit margin and return-on-investment. Cost reductions may take form of dropping less-essential businessactivities, outsourcing some functions to outside companies who are able to perform those activities cheaply but in a better way, redesigning internal business processes, consolidating unutilized production facilities,
closing down high-cost retail outlets, and pruning marginal products. Strategies for situation in fragmented industries for Global Strategic Management MCOM sem 3 Delhi University.
Fragmented Industry and Strategies
A fragmented industry is related to an industry environment quite different from the other three types of industry environment. Thus, it cannot be included in the ‘industry life cycle’ that includes emerging, maturing and declining industry environments. Because of its uniqueness, we will discuss in this lesson about the meaning of
fragmented industry including its situational factors and then discussions will be devoted to the possible strategic options in a fragmented industry.
Fragmented Industry Defined
A fragmented industry is one where the industrial or service units remain scattered all over the country or over a particular geographical region and none of the units has a substantial market share. As Thompson and Strickland observed: “A number of industries are populated by hundreds, even thousands, of small land medium-sized companies, many privately held and none with a substantial share of total industry sales.” The notable features of a fragmented industry include:
(i) Absence of market leaders;

(ii) None of the units has king-sized market share;
(iii) No single unit has widespread buyer recognition.
Examples of fragmented industry are many. Let us cite some of them –
health clinics, restaurants, hotels, automobile repairing, furnituremaking, garments, computer software development, boutiques, pottery, real estate, etc.

Possible Strategic Options in a Fragmented Industry
The type of strategic options that a firm can employ would vary depending on the extent of competition. Before finalizing on the options,a firm should take into consideration the basic characteristic features of fragmented industry such as low-entry barriers, competition from substitutes, weak bargaining power of firms due to their relatively small size, and the like. Such an industry environment may call for niche strategy rather than mass-market strategy. Strategies for situation in fragmented industries for Global Strategic Management MCOM sem 3 Delhi University. Differentiation strategy may
also be suitable for firms. We can summarize the strategy options of a firm in a fragmented industry as follows:
Focus/market niche strategy:
For a firm in a fragmented industry niche strategy to operate business in a well-defined small segment of a big market may be better suited. This is expected to offer better competitive advantage. A firm may either focus on one product category or it may focus on specific types of customers. Product-category-based niche strategy enables a firm to specialize by product type. Thus, it can concentrate on the production or distribution of specific product. When a firm adopts a niche strategy based on customer type, the firm can specifically cater to the needs of specific types of customers who want products with unique need-satisfying features. For example, a software firm may specialize on the development of only Accounting Information Systems or Retail Software. 5M InfoTech Limited is a firm of this type. It specializes on
the production of hospital/clinic management and hotel management. Similarly, a hotel may focus on only foreign tourists or low-cost-lover customers.

Focusing on Limited Geographical Area:
A firm may concentrate its operation within a particular geographical area. Supermarkets, convenience stores, or repair shops often undertake this strategy.
Low-Cost Strategy:
Many supermarkets and local stationery/grocery stores adopt low-cost strategy very successfully. They charge low prices for their products and thus are ale to attract customers. This strategy is better suited when price competition is high.
Operating Standardized Outlets:
Some firms in a fragmented industry follow the strategy of operating standardized outlets in different locations. However, these outlets (or operational shops/ stores/ sales centers) must be operated very efficiently. This strategy is successfully pursued by two international giant fast-food chains – Pizza Hut and Kentucky Fried Chicken (KFC).

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