Strategies for situation in maturing and declining industries for Global Strategic Management Mcom sem 3 Delhi University
Industry Situations: An Introduction
Strategies for situation in maturing and declining industries for Global Strategic Management MCOM sem 3 Delhi University:The best strategy always wins. A firm does the same thing in the marketplace as what the army do in the battle-field. The marketplace is similar to the war-field for a business organization. Doing business in a competitive market is just like a war in the battlefield. If the army commander fails to formulate and implement war-strategy most suitable to the particular situations in the battlefield, the army is doomed to
defeat. Similarly, if the managers of a company are unable to develop strategy appropriate to market situations, they will survive simply to lament for their failures. That is why, after identification of generic strategies, managers need to develop suitable strategies reflecting the company’s particular circumstances. In the previous two units we have examined strategies commonly undertaken by various firms. This unit examines the issue of matching strategies in different industry situations/ industry environment. Simply speaking, this unit will provide the readers with insights about customization of a company’s strategy on the basis of prevailing conditions in the industry. The discussion in this unit will equip the readers to answer the following two questions:
• What basic type of industry environment does the company operate in?
• What strategic options are usually best suited to this generic type of
Types of Industry Situations
Every company operates its business in an industry. An industry consists of all units producing similar products and competing for the same buyers. Industry has been defined by Thompson and Strickland as “a group of firms whose products have so many of the same attributes that they compete for the same buyers.”Strategies for situation in maturing and declining industries for Global Strategic Management MCOM sem 3 Delhi University.
1. Emerging Industry
2. Maturing Industry
3. Declining/Stagnant Industry
4. Fragmented Industry
These are the industry situations. From the very name it appears that industry situations widely differ. Every situation has its own unique character. We now examine each of them to appreciate each of their implications for strategy-making.
Emerging Industry and Strategies: Introduction It is very challenging to operate business firms in an emerging industry. Before we proceed toward identifying the strategic challenges in an emerging industry, let us define it. And, then we would explore the strategy-making challenges in the emerging industry, to be followed by
identification of possible strategies to pursue in emerging industry for success. Strategies for situation in maturing and declining industries for Global Strategic Management MCOM sem 3 Delhi University.
Emerging Industry Defined
An emerging industry is an industry which is at its early stage of development. In fact, it is an ‘infant industry.’ An emerging industry is characterized by a few number of competitors, high growth potential, uncertainty of demand, dominance of proprietary technology, wide differences in product quality, low entry barriers, difficulty in having
ample supply of raw materials, and so on. In Bangladesh, examples of emerging industry include software, broadband Internet, electronic banking, distance education, CD-based book publications, flower farming, fruits processing, and ‘spirulina’ (a herbal medicinal food product invented by BCSIR). Strategies for situation in maturing and declining industries for Global Strategic Management MCOM sem 3 Delhi University.
Strategy-Making Challenges in Emerging Industry
Michael Porter has pointed out several strategy-making challenges that manager’s face while competing in emerging industries. These are as follows:
1. Doubts exist about the functioning, growth and size of the market. Managers cannot make useful projections of sales and profits due lack of historical data. Thus, they mostly depend on guesswork. Strategies for situation in maturing and declining industries for Global Strategic Management MCOM sem 3 Delhi University.
2. Proprietary technology dominates the industry. The owners of the technology usually do not allow others to use it. Success mostly depends on patents and unique technical expertise. Strategies for situation in maturing and declining industries for Global Strategic Management MCOM sem 3 Delhi University.
3. Uncertainty prevails regarding the product attributes that may win customer acceptance. Uniformity is difficult to find in product quality and product performance. Therefore, competition in the industry centers around each company’s strategic approach to technology, product design and marketing. Strategies for situation in maturing and declining industries for Global Strategic Management MCOM sem 3 Delhi University.
4. Entry into the emerging industry is relatively easy. As a result,resourceful and opportunity-seeking companies may enter into the industry if there is a high growth prospect.
5. In an emerging industry all buyers are first-time users of products. Therefore, the marketing managers must try to induce initial purchase. Strategies for situation in maturing and declining industries for Global Strategic Management MCOM sem 3 Delhi University.
6. In an emerging industry the products are first-generation products (absolutely new). Thus, many potential customers defer their purchase until the quality improves.
7. Because of its immature stage, the emerging industry most often fails to attract the suppliers of raw materials to gear up their production. This creates hurdles in getting regular and adequate supply of raw materials.
Strategic Moves in Maturing Industries
- As the new competitive character of industry maturity begins to hit full force, any of several strategic moves can strengthen a firm’s competitive positions:
- Pruning Marginal Products and Models: Pruning marginal products from the line opens the door for cost savings and permits more concentration on items whose margins are highest and/or where a firm has a competitive advantage.
- More Emphasis on Value Chain Innovation: Efforts to reinvent the industry value chain can have a fourfold payoff – lower costs, better product or service quality, greater capability to turn out multiple or customized product versions, and shorter design-to-market cycles.
- Trimming Costs: Stiffening price competition gives firms extra incentives to drive down unit costs. Company cost reduction initiatives can cover a broad front.
- Increasing Sales to Present Customers: In a mature market, growing by taking customers away from rivals may not be as appealing as expanding sales to existing customers.
- Acquiring Rival Firms at Bargain Prices: Sometimes a firm can acquire the facilities and assets of struggling rivals quite cheaply.
- Expanding Internationally: As its domestic market matures, a firm may seek to enter foreign markets where attractive growth potential still exists and competitive pressures are not so strong.
- Building New or More Flexible Capabilities: The stiffening pressures of competition in a maturing or already mature market can often be combated by strengthening the company’s resource base and competitive capabilities.
Strategic Pitfalls in Maturing Industries
- Perhaps the biggest mistake a company can make as an industry matures is steering a middle course between low cost, differentiation, and focusing – blending efforts to achieve low cost with efforts to incorporate differentiating features and efforts to focus on a limited target market.
CORE CONCEPT: One of the greatest strategic mistakes a firm can make in a maturing industry is pursuing a compromise strategy that leaves it stuck in the middle. Strategies for situation in maturing and declining industries for Global Strategic Management MCOM sem 3 Delhi University.
2. Other strategic pitfalls include:
- Being slow to mount a defense against stiffening competitive pressures
- Concentrating more on protecting short-term profitability than on building or maintaining long-term competitive position
- Waiting too long to respond to price cutting by rivals
- Overexpanding in the face of slowing growth
- Overspending on advertising and sales promotion efforts in a losing effort to combat growth slowdown
- Failing to pursue cost reduction soon enough or aggressively enough
A firm operating in a maturing industry needs to adopt appropriate strategic moves to survive in the industry. Before it explores possible strategic moves, it must understand the dynamics of the industry environment. The maturing-industry dynamics include such elements as head-to-head competition among the competitors, strong bargaining by customers on product prices and attributes, a need for best combination
of price and service, problem in capacity expansion, a hard struggle for further product innovation, increased international competition, falling profitability and industry consolidation due to merger and acquisition. Keeping all these in view, a firm in a maturing industry may adopt any of the following strategic moves to strengthen its competitive position.
1. Pruning the product line: A firm hardly has competitive advantage in all areas of activities and in everything. Thus, it is not a business-wisdom to continue with such products in which the firm does not enjoy competitive advantage. This necessitates
pruning (eliminating) unprofitable or very-less-profitable productitems from the product line. Pruning marginal products results in cost savings. It also allows management give more concentration on the profitable products.
2. Greater emphasis on value chain innovation: In the industryvalue-chain the major parties involved are suppliers, producers, and distributors. Tripartite collaboration among these parties can produce excellent business results. In order to streamline the various value chain activities, they can collaborate on the use of
Internet technology. Their collaboration on the implementation of cost-saving innovations can also lead to improving market competitiveness. Overall, streamlining the industry-value-chain can have positive impact on costs, product and service quality capability to produce customized product versions and production cycle.
3. Cost reduction: A firm may pursue a strategy of reducing costs in all activities of the firm. Driving down unit costs of products is an ‘absolute must’ in a maturing industry. Costs can be reduced through procuring raw materials and components at a cheaper price, eliminating low-value activities from the firm’s value chain,
reorganizing/ reengineering business processes within the firm, dropping some of the intermediaries from the marketing channel, better supply chain management, using computerized systems instead of manual systems whenever feasible and so on.
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