Structural Determinants of Competition in Declining Industries

In the context of the analysis in Chapter 1, a number of struc-tural factors take on a particular importance in determining the na-ture of competition in the decline phase of an industry. Shrinking in-dustry sales make this phase potentially volatile. However, the ex-tent to which the incipient competitive pressure erodes profitability depends on some

Strategic Alternatives in Declining Industries

Discussions of strategy during decline usually revolve around disinvestment or harvest, but there is a range of strategic alterna-tives—although not all are necessarily feasible in any particular in-dustry. The range of strategies can be conveniently expressed in terms of four basic approaches (shown in Figure 12-1) to competing in decline, which the firm can

Choosing a Strategy for Declining Industries

The previous discussion provides a series of analytical steps to determine the position of the firm in a declining industry: Is the structure of the industry conducive to a hospitable (po–tentially profitable) decline phase based on the conditions in Section I? What are the exit barriers facing each and every significant competitor? Who will

Pitfalls in Declining Industries

Finding the firm‘s position on Figure 12-2 requires a great deal of subtle analysis, and many firms violate the basic consistency be-tween industry structure and strategic choice embodied in the figure. Study of declining industries also reveals a number of other potential pitfalls. Failure to Recognize Decline. With the benefit of hindsight, it is

Preparing for Declining Industries

If the firm can forecast industry conditions in the decline phase, it may be able to improve its position by taking steps during the ma–turity phase that greatly improve its position for decline; sometimes these moves cost little in terms of strategic position in maturity. Minimize investments or other actions that will raise exit

Sources and Impediments to Global Competition

Firms can participate in international activities through three basic mechanisms: licensing, export, and foreign direct investment. Usually a firm‘s first foray overseas involves export or licensing, and only after it has gained some international experience will it consider foreign direct investment. Export or foreign direct investment will be present in industries where competition is

Evolution to Global Industries

Few industries begin as global industries, but they tend to evolve into them over time. A number of triggers most common in creating global industries will be discussed. They involve either establishing or enhancing the sources of global competitive advantage or reduc-ing or eliminating impediments to global competition. The latter will not lead to

Competition in Global Industries

Competition in global industries presents some unique strategic issues compared to domestic competition. Although their resolution depends on the industry and the home and host countries involved, the following issues must be confronted in some way by global com-petitors. Industrial Policy and Competitive Behavior. Global industries are characterized by the presence of competitors operating

Strategic Alternatives in Global Industries

There are a number of basic strategic alternatives in a global in-dustry. The most fundamental choice a firm must make is whether it must compete globally or whether it can find niches where it can build a defensible strategy for competing in one or a few national markets. The alternatives are the following. Broad

Trends Affecting Global Competition

In the context of our discussion, there appear to be a number of trends that hold great importance for competition in existing global industries and for the creation of new ones. Reduction in Differences Among Countries. A number of ob-servers have pointed out that the economic differences among devel-oped and newly developed countries may

Strategic Decisions

Part III draws on the analytical structure in Part I to examine each major type of strategic decision that occurs in an industry: vertical integration (Chapter 14); major capacity expansion (Chapter 15); entry (Chapter 16). Divestment, the other major type of strategic decision, is considered in detail in Chapter 12, which analyzes the problems

Strategic Benefits and Costs of Vertical Integration

Vertical integration has important generic benefits and costs which need to be considered in any decision but whose significance will depend on the particular industry. They apply to both forward and backward integration, with the necessary changes in perspective. I will discuss these generalized benefits and costs here, saving for la-ter sections an examination

Particular Strategic Issues in Forward Integration

In addition to the benefits and costs of integration previously discussed, there are some particular issues raised by forward integra-tion. Improved Ability to Differentiate the Product. Forward inte-gration can often allow the firm to differentiate its product more successfully because the firm can control more elements of the pro-duction process or the way the

Particular Strategic Issues in Backward Integration

As with forward integration, there are some particular issues that must be examined in considering backward integration. Proprietary Knowledge. By producing its needs internally, the firm can avoid sharing proprietary data with its suppliers, who need it to manufacture component parts or raw materials. Often the exact specifications for component parts reveal the key

Illusions in Vertical Integration Decisions

There are some common misperceptions about the benefits of vertical integration that must be guarded against: A strong market position in one stage can automatically be extended to the other. It is often said that the firm with a strong position in its base business can integrate into a more competitive adjacent business and

Elements of the Capacity Expansion Decision

The mechanics of making a capacity expansion decision in the traditional capital budgeting sense are quite straightforward—any finance textbook will supply the details. Future cash flows resulting from the new capacity are forecasted and discounted to weigh them against the cash outflows required for the investment. The resulting net present value ranks the capacity

Causes of Overbuilding Capacity Preemptive Strategies

One approach to capacity expansion in a growing market is the preemptive strategy, in which the firm seeks to lock up a major por-tion of the market to discourage its competitors from expanding and to deter entry. If future demand is known with certainty, for exam-ple, and a firm can build enough capacity to

Entry through Internal Development Entry through Acquisition

Entry through internal development involves the creation of a new business entity in an industry, including new production capa-city, distribution relationships, sales force, and so on. Joint ventures raise essentially the same economic issues because they are also new-ly started entities, although they create complicated questions about the division of efforts among the partners

Sequenced Entry into new businesses

Any decision to enter an industry must include a target strategic group. However, the discussion in Chapter 7 combined with the analysis earlier in this chapter suggests that a firm can adopt a se-quential strategy of entry involving initial entry into one group and subsequent mobility from group to group. For example, Procter and

Portfolio techniques in competitor analysis

Since the late 1960s a number of techniques have been developed for displaying a diversified firm‘s operations as a “portfolio” of busi-nesses. These techniques provide simple frameworks for charting or categorizing the different businesses in a firm‘s portfolio and deter-mining the implications for resource allocation. Techniques for portfolio analysis have their greatest applicability in