Question

What strategic options a firm could follow when the firm is operating in a maturing industry?

Answer 1

Strategies for survival in a mature industry – often with excess production capacity

• Strategies will ultimately depend on a specific analysis of the industry, but here are some general strategies based on game theory, resource-based strategy and competitive industry analysis:
• Consider buying rival companies and closing down capacity. This may sound harsh but it has been successfully attempted in steel, textiles and food industries in the past. The survivors are more sound.
• Decrease the cost base. This is a key decision but the survivors are much more likely to be those that have lower costs. It follows that, if this is really not an option at this stage, then some other fundamental change is required. There are risks in such an approach but some individual companies will have to take the decision to invest to reduce industry costs.
• Link through to customers and end-users. It may be possible to reduce the risk by securing part of the market by negotiating a contractual link of some kind. Some car industry suppliers have secured their future in this way.
• Introduce a stronger service element into the product portfolio. By providing a much higher service element, some companies have found the means of survival. This has the great strategic merit that it takes the company away from simple global competition for two reasons: first, because service has to be regional or even local in some cases; second, because service by its nature has to be tailored to the individual customer and therefore is no longer subject to simple cost comparison with rivals. Smaller companies have used this strategy successfully.
• Beware industries that are supported by funds from their governments. This has probably been the most single important factor in some countries for the survival of inefficient – or even efficient – companies. Unless it can be tackled at government to government level, it is best to avoid the country.