Evaluating Entrepreneurial Opportunities Relative
to an Industry’s Structure
Diane M. Sullivan (2007)
Industry Structures

An industry’s structure indicates the stage of an industry its life
cycle

Suggests types of firms that will likely be successful in the industry

Helps us determine if the window of opportunity is open for new entrants

Suggests strategic moves that new entrants or existing firms can take to
capitalize on opportunities created as a result of industry characteristics

5 general structures an industry can take (these are not mutually
exclusive):
1.
Emerging
2.
Fragmented
3.
Mature
4.
Declining
5.
Global
Industry Structures: Emerging

Indicated by: Newly created or re-created industries

Primary causes: technological innovations, changes in demand, the emergence of
new customer needs, etc.


Examples: microprocessors, digital music, cell phones, biotechnology
Entrepreneurial opportunities present in emerging industries:

Gain a first-mover advantages via:

Technology leadership: can create the technology standard (e.g., Microsoft), gain lowcost position due to economies of scale (Wal-Mart), obtain patent protection

Caution: second-mover advantages may occur where imitators can duplicate the first movers’
patents—research shows imitators can do this for 65% of the cost of the first-mover

Strategically valuable assets (e.g., required resources to compete in industry): access
to raw materials (e.g., mining industries), favorable geographic locations (Wal-Mart in
medium-sized cities before competition), valuable product market positions (breakfast
manufacturers; luxury vehicles)

Create customer switching costs: create a cost for customers to change to another
firm’s offerings (e.g., software, pharmaceuticals, even some grocery stores)
Industry Structures: Fragmented


Indicated by:

A large number of small to SME firms in the industry

No one has dominant market share

No one creates a dominant technology
Primary causes: few barriers to entry, no economies of scale, may need close
local control over enterprises to ensure quality


Examples: service industries like retailing, commercial printing, dry cleaning,
local movie houses
Entrepreneurial opportunities present in fragmented industries:

Consolidation: firms can consolidate (e.g., purchase firms) the industry to move
create a smaller number of larger firms

Examples:

Blockbuster consolidated the video rental industry

Service Corporation International (SCI) in the funeral industry (found new economies of scale)

Midas has consolidated muffler repair shops
Industry Structures: Mature


Indicated by:

Slowing industry growth

Development of repeat customers

Slowing of production capacity

Slowdown in new product/service introductions

Increased international competition

Overall reduction in profitability of firms in industry
Primary causes: technology diffusion, reduction in innovation rate


Examples: fast food; motor oil, large discount retailers; laundry detergents, kitchen appliances
Entrepreneurial opportunities present in mature industries:

Product refinement: focus on extending/improving current products and technologies (e.g., additives to
motor oil, more concentrated laundry detergents; front-loading washing machines; Silk Soymilk)

Investment in service quality: increase customer service quality (e.g., restaurant industry and the casual
dining segment—Applebee's; Chili's—versus fast-food service)

Process innovation: activities used to design, product and sell products/services (e.g., US automobile
industry; Dell and supply-chain management in PC industry)
Industry Structures: Declining

Indicated by: An industry that has experienced an absolute decline in unit sales
over a sustained period of time.


Examples: Traditional video rental industry; US defense industry after the Cold War
in the 1980s
Entrepreneurial opportunities present in declining industries:

Market Leadership: wait out shakeout period; facilitate shakeout by purchasing
competitors’ product lines, then try to gain majority of market share (e.g., Martin
Marietta in defense industry acquiring GE’s aerospace business—then merged with
Lockheed to become Lockheed Martin)

Market Niche: reduce scope of operations and focus on narrow segments in industry
(e.g., Polaroid with instant photography)

Harvest: long, systematic, phased withdrawal from industry while extracting as
much value as possible

Divestment: quickly withdraw from industry after industry decline pattern is
established so no additional costs incurred (e.g., can sell product lines to competitors)
Industry Structures: Global
 Indicated

by: industry experiencing significant international sales
Examples: athletic shoes; internet auctions; fast food
 Entrepreneurial
opportunities present in global industries:

Pursue Multidomestic Strategy: customize product/service offerings per
each market’s specific needs/wants (fast food; eBay)

Pursue Global Strategy: approach each market with the same offerings
(e.g., Nike)
 Determine
which strategy appropriate by similarity of consumers’
tastes across markets