Industry Evolution & Environments Flashcards
High entry and mobility barriers and low exit barriers promote
Profitability
The product life cycle includes four stages:
1) Introduction stage
2) Growth stage
3) Maturity stage
4) Decline stage
Are the incentives or pressures that cause structural change. These processes operate to move an industry from its initial structure to its potential structure.
Evolutionary processes
Individual firms have insignificant market shares and little influence on industry outcome.
Fragmented industry
Economic causes of fragmentation may include:
1) Diseconomies of scale and
2) Diverse market needs
Can contributes diseconomies of scales in a fragmented industry:
1) High transportation costs,
2) High inventory carrying costs, and
3) Sharp and unpredictable changes in sales.
Fragmentation can be overcome if the factor(s) preventing consolidation can be eliminated. Examples include the following:
1) Using technology to create economies of scale in production, marketing, distribution service, etc.
2) Standardizing diverse market needs by introducing a new product
3) Isolating factors responsible for fragmentation
4) Acquisitions
Is new or newly formed and is small initially. No rules exist, creating risks and opportunities.
Emerging industry
Examples of strategic choices in emerging industries include:
1) Shaping the structure of an emerging industry and
2) Considering externalities in industry development
Has sustained a permanent decrease in unit sales over the long run. However, this phase of the industry life cycle does not correspond exactly to the decline stage in the product life cycle.
Declining industry
Examples of strategic choices in declining industries include the following:
1) Leadership strategy
2) Niche strategy
3) Harvest strategy
4) Quick divestment strategy
In a declining industry: Is adopted by a firm that believes it can achieve market share gains to become the dominant firm.
Leadership strategy
In a declining industry: Seeks a market segment (pocket of demand) with stable or slowly decreasing demand with the potential for above-average returns.
Niche strategy
In a declining industry: Is, in effect, a controlled, gradual liquidation that maximizes cash flow by reducing costs and using the firm’s remaining strengths to increase prices or maintain sales.
Harvest strategy
In a declining industry: Assumes that the highest net recovery is obtained by sale early in the decline phase. It is then that uncertainty about the industry’s future is greatest and other markets for the assets are most favorable.
Quick divestment strategy
