Rising or Emerging Industry/Maturing Industry/Declining

7.
Rising or Emerging Industry/Maturing Industry/Declining

Industry
Emerging Industry Definition

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.
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:
 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.
 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.
 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.
 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.
 In an emerging industry all buyers are first-time users of products. Therefore, the
marketing managers must try to induce initial purchase.
 In an emerging industry the products are first-generation products (absolutely new). Thus, many
potential customers defer their purchase until the quality improves.
 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.
Possible Strategies to Pursue in Emerging Industries
Several strategic options are available to the entrepreneurs in the emerging industry:
 Low-cost strategy is viable to discourage potential competitors to enter into the

industry. Even company can use price-cuts to attract the price-sensitive buyers.
 Differentiation strategies may be adopted based on technological or product superiority.
 A company may adopt cooperative strategy (strategic alliance) through forming
partnership with key suppliers of materials and components.
 A company may form strategic alliance with other companies having technological
expertise to outcompete strong competitors.
 Acquisition strategy may be followed to acquire special skills or capabilities so that the
company can weaken the competitors based on technological superiority.
 A company may enter into a joint venture agreement (if there are financial constraints)
to cover greater geographical areas or pursue new customer groups.
Meaning and Nature of “Maturing Industry”

As an industry grows rapidly, it reaches a point where further growth slackens significantly. The
growth in the industry is halted due to saturation in the market demand. When an industry is in
such a situation, it is called a maturing industry. According to Thompson and Strickland, a
maturing industry is an industry that is moving from rapid growth to significantly lower growth.
According to their views, in a maturing industry at least three issues become dominant:
(i) Nearly all potential buyers are already users of the industry’s products;
(ii) Market demand consists mainly of replacement sales to existing users; and
(iii) Growth in the industry depends on the industry’s ability to attract new buyers and
motivate existing buyers to increase their use of products.
Market Maturity and Fundamental Changes in the Maturing Industry’s
Competitive environment
A number of fundamental changes occur in a maturing industry’s competitive environment due
to market maturity. Michael Porter identified these changes as follows:1
1. Growth in buyer demand slows down. This generates head-to-head competition for market
share
2. Buyers become more sophisticated. They start hard bargaining on repeat purchases.
3. Competition produces greater emphasis on cost and service. All competitors try to reduce
costs and improve services to customers.
4. The industry experiences a slowdown in capacity expansion because of slow growth.
5. It becomes difficult for the producers to create new product innovations and eventually they
may not be able to sustain buyer excitement.
6. International competition increases because growth-minded companies try to find out ways
to enter into foreign markets.
7. Industry profitability falls temporarily or permanently. This happens due to slower growth,
increased competition, and occasional periods of overcapacity.
8. Competition becomes very stiff. As a result of this, competitors feel the urge to go for merger
or acquisitions rather than going for competition against each other. The resultant outcome is
that the weak and inefficient firms are driven out of the industry
Strategic Options in a Maturing Industry
 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.
 Greater emphasis on value chain innovation: In the industry value-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.
 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.
 Strengthening resource base and competitive capabilities: Obviously, a mature market

is full of stiffening competitive pressures. In order to combat these pressures, a firm
needs to build new capabilities as well as strengthen its resource base. The firm can do
it by adding new competencies making the competencies harder to initiate (by rivals),
and making the firm’s core competencies more adaptable to customers’ requirements.
 Increasing sales to existing customers: In a mature market it is difficult to increase the

number of customers who are already customers of competing brands. So, strategy
should be geared towards retaining the present customers and persuading them to
increase their purchases. It is better for a firm to increase the average sales per existing
customer than trying to ‘snatch away’ customers of the competitors. For example, a
restaurant may increase its average sales to its customers by adding CD/VCD Corner,
cyber cafe, mobile prepaid card counter, and even a book corner.
 Acquisition strategy: If available, a firm in a mature market can acquire weak firms
(usually managerially poor) to expand market share. Acquisition may also provide a firm
greater opportunities for greater economies of scale in production and marketing.
 Multinational strategy: A successful firm may opt for entering into foreign markets if
the domestic market matures. However, before deciding for going international, a firm
must look for those international markets where there is a potential for growth in the
future. As examples, Indian companies have a scope to expand into such emerging
markets as Bangladesh, Nepal, Sri Lanka, Malaysia, Myanmar and Mauritius.
Bangladeshi companies can expand into Nepal, Bhutan and the Middle-East countries
and in some African countries. Even though the US market for soft drink in mature,
Coca-Cola has remained a growth company by upping its efforts to penetrate foreign
markets where soft-drink sales are expanding rapidly.
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.
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 near term cash flows or current
profitability. When a firm adopts harvesting strategy, it cuts down the budget
substantially, reinvestment is rarely made, new equipment’s 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.
 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.
 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. Innovation based 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 business activities, 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.

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7.

Rising or Emerging Industry/Maturing Industry/Declining

Emerging Industry Definition

Strategy-Making Challenges in Emerging Industry

 Low-cost strategy is viable to discourage potential competitors to enter into the

Meaning and Nature of “Maturing Industry”

4. The industry experiences a slowdown in capacity expansion because of slow growth.

Strategic Options in a Maturing Industry

 Strengthening resource base and competitive capabilities: Obviously, a mature market

 Increasing sales to existing customers: In a mature market it is difficult to increase the

Meaning of Declining Industry

Strategic Options in a Declining Industry

 Harvesting Strategy: A firm in a declining industry may choose to employ harvesting

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