The development stage of an industry is an engaging period.
This period is an ‘experimental’ stage with several players, offering different products, with a low competition. Yet, though competition is relatively low, high investment costs make it difficult to join among other industry players. Industries of today, such as alternative energy, advanced production, genetic science, biotechnology are examples for this stage. Focusing on ‘innovation and differentiation’ strategies would be a viable approach for the development stage.
The ‘rapid growth’ stage follows the development stage.
In a period of rapid growth, there is still a market potential that can feed many players. Current players have not yet reached certain scales. Industry standards have not yet been set, customers’ experiences have been limited and expectations have not been clarified. Therefore, entry of new players into the industry might rather be convenient, which consequentially, would increase the competitive pressure. The most likely areas of difficulty in ‘rapid growth’ stage would be the ability to predict and meet the demands. Encountering problems in raw material supply, supply chain management, logistics and operational infrastructure, would be possible.
It is a period of increase in bargaining power of the suppliers. On the other hand, since Customer expectations are not clear, bargaining forces would relatively be low. As a matter of fact, Customers may keep new products in stock just to own them. The secret to success in the period of rapid growth is to develop the ability to grow (by generating a consistent source of income). It would be crucial to use information effectively; establish a managerial, operational and technological infrastructure and use them effectively.
As the growth rate begins to decrease, ‘turbulent’ times will come into play.
As soon as competition increases, growth rate decreases. During this period, those who get weak in financial situation, reputation, quality and operational competencies due to competitive conditions and maturing customer expectations, would get out the game. This is certainly a difficult time for everyone where some players would get even stronger, while others are off form. In order for businesses to survive, their managerial and financial competencies should be strong. Examples for these turbulent times include the decline in traditional real estate business due to online search engines, the decline in the development of oil-based industries or the decline in printed press. Although leadership is important in all times, it is even more crucial in turbulent times.
During the ‘maturity’ stage of industries, players emerge who have reached the economy of scale and who have established experiences in the industry.
Selling standardized products and services becomes an advantage. During this period, the placement of standards and controls increase the consumers’ and customers’ trust. They know what to expect and have increased their chances of accessing different suppliers. Today, steel, automotive and pharmaceutical industries are in a category that new players find it harder and harder to penetrate. Research costs in the pharmaceutical industry; costs such as capital investment in the automotive industry are absolutely challenging. In this stage, the most important subject is to grab ‘market share’. The essential components of the equation are attracting the attention of consumers/customers by developing differentiation strategies and being able to provide a cost advantage that is more convenient than competition.
The ‘possible exit’ or ‘downsizing’ stage is a stage where tooth for tooth competition takes place; it is based on taking share off and destroying the weak.
Good, try and see! When things start freefalling, it is the period of intense war of price competition. At this stage, you must constantly prove your customers and the market that you will remain a market player. Costs will once more be critical. It is always possible to reborn from maturity stage by developing niche markets and finding opportunities in sub-segments with an innovative perspective.
What makes industries attractive is the overall profitability potential.
In competitive industries, the pressure on organizations will be so high that it will be difficult to achieve a reasonable profitability. Barriers to entry may prevent new competitors from easily entering an industry. Existing scales and acquired experience in the industry, the location of supply or distribution channels, price wars, marketing and brand perception, differentiation, laws and government practices can become either significant barriers to entry or advantages.
Release: SME-EFOR October 2012