Page 68 - DCOM506_DMGT502_STRATEGIC_MANAGEMENT

Strategic Management

Notes Mature industries: Are those who reached the maturity stage of their life cycle.
Declining industries: Are those in the transition stage from maturity to decline.
Global industries: Are those with manufacturing bases and marketing operations in
several countries.
Competition varies during each stage of industry life cycle.
4. Industry Structure: Defining an industry’s boundaries is incomplete without an
understanding of its structural attributes. Structural attributes are the enduring
characteristics that give an industry its distinctive character.
Industry structure consists of four elements:

(a) Concentration
(b) Economies of scale
(c) Product differentiation
(d) Barriers to entry.

(a) Concentration: It means the extent to which industry sales are dominated by only a
few firms. In a highly concentrated industry (i.e. an industry whose sales are
dominated by a handful of firms), the intensity of competition declines over time.
High concentration serves as a barrier to entry into an industry, because it enables
the firms to hold large market shares to achieve significant economies of scale.
(b) Economies of scale: This is an important determinant of competition in an industry.
Firms that enjoy economies of scale can charge lower prices than their competitors,
because of their savings in per unit cost of production. They also can create barriers
to entry by reducing their prices temporarily or permanently to deter new firms
from entering the industry.

(c) Product differentiation: Real perceived differentiation often intensifies competition
among existing firms.
(d) Barriers to entry: Barriers to entry are the obstacles that a firm must overcome to
enter an industry, and the competition from new entrants depends mostly on entry
barriers.

5. Industry attractiveness: Industry attractiveness is dependent on the following factors:
(a) Profit potential

(b) Growth prospects
(c) Competition
(d) Industry barriers etc.

As a general proposition, if an industry’s profit prospects are above average, the industry
can be considered attractive; if its profit prospects are below average, it is considered
unattractive. If the industry and competitive situation is assessed as attractive, firms employ
strategies to expand sales and invest in additional facilities as needed to strengthen their
long-term competitive position in business. If the industry is judged as unattractive, firms
may choose to invest cautiously, look for ways to protect their profitability. Strong
companies may consider diversification into more attractive businesses. Weak companies
may consider merging with a rival to bolster market share and profitability.

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