Topic 3: TAILORING STRATEGY TO FIT SPECIFIC INDUSTRY Flashcards
The ultimate choice of strategy in the specific circumstances of
a company to achieve the firm’s long-term objectives requires the strategy to match or align (1)
opportunities and threats in the macro environment and in the industry environment, to (2) the
company’s own resource strengths and weaknesses, competitive capabilities, and market position.
STRATEGIES FOR COMPETING IN EMERGING INDUSTRIES
Emerging industries find themselves in the formative stage and have very specific characteristics.
Within these parameters, firms in emerging industries require a specific approach to strategy
development and choice.
characteristics of and challenges presented by emerging industries include the following:
• Because the industry and market are in their infancy, there is generally much uncertainty and
speculation about how it will continue to function, how fast it will grow, and how big it will
become.
• In many cases, the technological and other know-how related to products of firms in emerging
industries are proprietary and closely guarded.
• Despite uncertainties about technology, there is also no certainty that product attributes will
win buyer favour.
• All buyers in emerging industries are first-time users, and initial purchases must be induced
by extensive marketing efforts.
• Many potential buyers expect first-generation products to be improved, and are thus inclined
to delay purchases.
• Entry barriers are typically very low, even for entrepreneurial start-up companies, and large
companies will enter on the basis of good industry prospects and if the new ventures could
harm their existing business.
• Strong experience/learning curve effects may be present, which could result in price
reductions, but this is rather unlikely in the early stages.
• Firms often have problems in securing supplies and raw materials.
• Undercapitalised companies are typically short of funds for R & D, and end up merging with
or being taken over by competitors that see the industry as a growth market.
STRATEGY OPTIONS FOR EMERGING INDUSTRIES
Companies in an emerging industry have wide latitude in experimenting with different strategic
approaches. Emerging industries are generally characterised by:
• A lack of established industry rules
• Considerable freedom for industry participants to experiment with a wide variety of different
strategic options and approaches.
In addition to choosing a competitive strategy, companies in an emerging industry need to consider
one or more of the following actions in their approach to strategy:
• Attempt to perfect technology, improve product quality and develop additional attractive
features.
• Consider merging with or acquiring another firm.
• Try to capture first-mover advantages by adopting emerging, dominant technologies quickly.
• Acquire or form alliances with companies that have related or complementary technological
expertise.
• Pressure new customer groups, new user applications, and consider entry into new
geographical areas.
• Make it easy and cheap for first-time buyers to try the industry’s first-generation products.
• Shift advertising emphasis from creating product awareness to increasing product use and
building brand loyalty as the product becomes more familiar.
• Use price-cuts to attract the neat layer of price-sensitive buyers into the market.
• Form strategic alliances with key suppliers to enhance the supply chain and increase
competitiveness.
Hough (p.222) mentions that firms in emerging industries face the following four strategic hurdles:
• Raising the capital to finance initial operations until sales increase to the point where profits
are realised and cash flows are positive.
• Developing a strategy to ride the wave in industry growth.
• Managing the rapid expansion of facilities and sales towards a position of industry leadership.
• Defending against competitors trying to home in on their success.
Firms in emerging industries require entrepreneurial managers, solid resource capabilities, a viable
business model, and an effective strategy. Study the implications as well as some of the dangers for
firms in emerging industries intent on growing and gradually working towards a leadership position in
the industry.
STRATEGIES FOR COMPETING IN RAPIDLY GROWING MARKETS
In rapidly growing markets, a company needs a strategy that will enable it to achieve market growth
in excess of average industry market growth to expand its market share and improve its
competitiveness and profitability.
To achieve this in a rapidly-growing industry, a company’s strategy should include one or more of the
following:
• Driving down costs per unit to enable price reductions that attract numerous new customers.
• Striving for rapid product innovation to distinguish the company’s products from those of its
competitors, and to include attributes that will attract growing numbers of customers.
• Gaining access to additional distribution channels and sales outlets.
• Expanding the company’s geographic coverage.
• Expanding the product line to add models/styles that will appeal to and attract a wider range
of buyers.
STRATEGIES FOR COMPETING IN MATURING INDUSTRIES
A maturing industry is one where rapid growth tapers off to significantly slower growth.
Characteristics of a maturing industry are reflected in the following:
• Nearly all potential buyers are already users of an industry’s products
• Growth in market demand is more or less the same as the overall population growth
• Demand mainly comprises replacement sales to existing users
• Growth depends on the ability of the industry to increase product use and sales of existing
buyers as well as attracting some new buyers
The emergence of new technologies, product innovations and other regenerating factors can stall the
movement to full industry maturity for a while, but not indefinitely.
Strategies that fit conditions in maturing industries
Strategic moves that can strengthen a company’s competitive position in a maturing industry include
the following:
• Pruning marginal products
• Improving value-chain efficiency
• Trimming costs
• Increasing sales to present customers
• Acquiring rival firms at bargain prices
• Expanding internationally
• Building new or more flexible capabilities
Summarise these issues which reflect ways and means of improving the competitiveness of a company
in a maturing industry, ways and means primarily based on increased efficiency, market expansion
and cost-cutting.
3.5.3 Strategic pitfalls in maturing industries
According to Hough (p.227), the biggest mistake a company in a maturing industry can make is to steer
a middle course between low cost, differentiation, and focusing. This strategy will be unclear, and
management would not be able to determine the sources of success or failure effectively.
Other strategic pitfalls include slow defence against competitive pressures, focusing more on short-
term rather than long-term issues, waiting too long to respond to price cutting by rivals, over
expanding capacity in times of slow growth, overspending on advertising and sales promotion, and
failing to pursue cost reductions early enough and/or aggressively enough.
STRATEGIES FOR COMPETING IN STAGNANT OR DECLINING INDUSTRIES
Strange as it may sound, companies in declining industries are not necessarily doomed to declining
revenues and profits. In declining industries, demand is growing at a slower rate than the economy
overall. Reasons for the decline in demand for an industry’s products include:
• Advancing technology resulting in better-performing substitute products or lower costs,
• A shrinking customer group,
• Changing life-styles and buyer tastes, and
• Rising costs of complimentary products.
Study the examples as well as the implications that are explained in this section.
Businesses in stagnant or declining industries have to make the following fundamental strategic
choice:
• Whether to remain committed to the industry for the long term despite its dim prospects, or
• To pursue an end-game strategy to withdraw from the market, either gradually or quickly.
Study the consequences and implications of each of these two alternatives in this section. However,
where a company decides to ‘stick it out’, the following present the three best strategic alternatives
in such a case:
• Pursue a focused strategy aimed at the fastest-growing or slowest-decaying market segment
within the stagnant or declining industry.
• Stress differentiation based on quality improvement and product innovation.
• Strive to decrease costs and become the industry’s low-cost leader.
Study these three options, noting that they are not mutually exclusive, and are actually based on the
five generic competitive strategies, adapted to fit this specific industry situation.
