University of Cagliari, Faculty of Economics, 2011-12
Business Strategy and Policy
A course within the II level degree in
Managerial Economics
year II, semester I, 9 credits
Lecturer:
Dr Alberto Asquer
aasquer@unica.it
Phone: 070 6753399
Introduction
0. Stages of industry development
1. Strategy in emerging industries
2. Strategy in rapidly growing industries
3. Strategy in slow-growth, mature industries
4. Strategy in stagnant industries
5. Strategy in turbulent, fast changing industries
6. Strategy in fragmented industries
------------7. Summary
0. Stages of industry development
General pattern:
Total industry
turnover
Maturity
Decline
Growth
Creation
time
0. Stages of industry development
Over time, industry structure may change – ranging from more
fragmented (i.e., several relatively undifferentiated firms) to more
concentrated (i.e., up to the presence of one firm only in monopoly
conditions)
Highly fragmented
Monopoly
Monopolistic
competition
Oligopoly
0. Stages of industry development
Over time, the industry environment may change – especially, the
institutional environment related to governmental industrial policies.
Governmental industrial policies may relate to:
Changing ownership structure of dominant firms
Nationalisation
Enel, 1962
Privatisation
Enel, 1999
Changing conditions of access, price setting, and service requirements
Re-regulation
Liberalisation
Electricity sector
in Italy, 1999
1. Strategy in emerging industries
Main features:
e.g., biotech
Uncertainty about technological standards, consumers' tastes, and
development prospects
Constraints arising from proprietary know-how of pioneering firms
Sometimes, low barriers to entry
Relatively high learning and experience curves
Relatively unstructured supply chains and distribution channels
Exposure to take-over opportunities/threats
1. Strategy in emerging industries
Strategy options:
Pushing to excel in technology features, reliability, quality, product
performance
Considering merging or acquiring / striking strategic alliances with
other firms to speed up development process
Imitating any first-movers in order to keep the pace of innovation
Stimulate adoption and diffusion of the product among 'early
customers'
Then, strengthen brand recognition
Then, cut prices to attract more customers
(develop resources, distinctive capabilities, set the 'rules of the game')
1. Strategy in emerging industries
Also consider, emerging industries in new (emerging) markets:
Newly industrialised countries
Not industralised yet, but not least developed either
Early movers can establish their presence and brand first; make preemptive moves into technology standards and distribution channels;
acquire loyalty of pioneering customers; and set other firms as
'followers'
2. Strategy in rapidly growing industries
Main features:
e.g., ISP services, some years ago
Focus is typically placed on increasing revenues, as this relates to
maintaining or enlarging market share and fuelling investments
Strategy options:
Lowering costs in order to attract as many customers as possible
Diversify product features in order to appeal to as many customer
segments as possible
Strengthen market access (distribution channels) and enlarge
geographical reach
3. Strategy in slow-growth, mature industries
Main features:
e.g., car industry in Italy
Increasing head-to-head competition for market share
Increasing sophistication of customers' tastes, expectation of low
price and of additional services
Increasing excess capacity
Slower rate of product innovation
Increasing international competition
General fall of average industry profitability
Increasing mergers and acquisitions (industry consolidation)
3. Strategy in slow-growth, mature industries
Strategy options:
Enhanced attention to pricing strategies and product portfolio (e.g.,
dropping non-profitable product or product lines)
Improving value chain efficiency
Enhancing cost cutting and control
Trying and increase sales to present customers
Acquiring rival firms at a bargain price
Expanding internationally
Building new capabilities (i.e., re-orienting the firm to other business
areas)
4. Strategy in stagnant industries
Main features:
e.g., CD makers
Uncertainty, i.e., For how long will the market be profitable? Will it
ever 'resurge'? Shall we exit immediately, or when? What is the best
exit strategy?
Strategy options:
Keeping focus on most lucrative segments of the demand
Enhance differentiation of products with respect to competitors
Enhance low cost with respect to any competitor
If deciding to exit...
Slow-exit strategy (keep harvesting lucrative customers; subsidies?)
Fast-exit strategy (sale; closedown)
5. Strategy in turbulent, fast changing industries
Main features:
e.g., publishing industry
High-speed changes of technology, customers' tastes, industry
structure
Strategy options:
Generally, a firm can react to change, anticipate change, or leading
change
In particular, investing in R&D, continuously renewing products,
developing quick-response capabilities (e.g., reactiveness to
customers' feedback), relying on strategic partnerships, accelerate
product development and marketing campaigns
6. Strategy in fragmented industries
Main features:
Market reach is primarily local
Customers' tastes are very diverse
Entry barriers are low
Economies of scale are not so relevant
Technology is diverse and possibly without any set standard
6. Strategy in fragmented industries
Strategy options:
Construct a 'formula' facility and try and replicate it
Position as a low cost operator
Specialise by product type or customer type
Focus on a limited geographical area
7. Summary
Main points
Features of the industry development are quite important in strategy
analysis and formulation.
Features of the industry development include the stages of the industry
life-cycle. Additional features relate to industry structure (concentrated
or fragmented) and to governmental industrial policies (e.g.,
nationalisation, privatisation, re-regulation, liberalisation).
Different strategy options are generally pursued depending on the
conditions of the industry: emergent, fast-growing, mature, or stagnant
(declining), turbulent, and fragmented.