What are the possible strategies that a company may pursue in an emerging industry?

Enter Low and Middle End Segments of the Market

It has been found that many multinationals find their sweet spot in emerging markets when they cater to the lower and the middle end of the market segments. In other words contrary to popular perception, multinationals find that selling to these segments is much better than focusing on the top segment alone. The experience of Japanese companies which focused on the top segment in many emerging markets and which found that they were not succeeding is a case in point. This led to the Japanese auto majors to target the lower and middle end of the market segments in many Asian countries including India where the Japanese carmakers have targeted these segments with good results.

Take the Merger and Acquisition Route

Western multinationals are put off by the rigid bureaucracy and political interference in many emerging markets, which makes them reluctant to expand their operations. In this case, they can tie up with the local companies and enter into mergers or acquire local businesses. This makes sense because the senior management from the local companies would be conversant with the local bureaucracy and hence, their familiarity and knowledge can be tapped to deal with policy paralysis and the logjam that many emerging markets are going through in recent years. Another advantage of this strategy is that the multinationals can grow inorganically when organic growth is no longer possible or feasible.

Display Commitment and Send Senior Talent

Often it is the case that many multinationals do not take the emerging markets as seriously as they would take the developed countries. This means that they do not send high performers and senior executives to head their operations in these countries. The net result is that they face a lack of talent to steer their operations in these countries. Of course, the fact that working and living in emerging markets like India, Brazil, and Russia is difficult for many expatriates from the West. However, this should not deter them from displaying commitment. Talking about commitment, many multinationals lose interest in emerging markets within a couple of years especially when the returns are not up to their expectations. With political risk and societal barriers impeding their growth, many western multinationals pull out or sell their stakes. The key aspect here is that since the western multinationals have deep pockets, it makes sense to the stay the course for at least five years and hence the commitment apart from sending top-notch talent has to be actualized.

Closing Thoughts

Multinationals do not have a choice but to expand into emerging markets since growth in the developed world has crawled to around 2% whereas even the most underperforming emerging markets are reporting 5% growth. Hence, the strategies to be followed by multinationals include the combination of the strategies discussed above along with more focus on the next “Breakout Nations” like Vietnam, Algeria, and Mexico. It remains to be seen as to how well the western multinationals adapt to the local conditions in these countries.

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This best strategy for a given firm is ultimately a unique construction reflecting it’s particular. – MICHAEL E. PORTER. This topic discusses on the various strategies available for/adapted by firms in various business scenarios or market conditions. Listed below are the different market environments and the strategies that managers have the option of adapting in order to make strategic decisions and face challenges in order to survive in the market.

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STRATEGIES FOR COMPETING IN EMERGING INDUSTRIES OF THE FUTURE

Emerging industries are the early formative stage of a company. The features of companies in this industry are latest technology, adding human resource, acquiring constructing facilities, broadening distribution and marketing channels, gearing up operating facilities and gaining buyer acceptance. Emerging industries face issues such as product design problem and technological problems that remain to be sorted out.

Market is new and has an unproven track record and so there is an uncertainty of how the market will behave, how fast it will grow and how big it will get.

Strategists should be aware of the new technological development in product design and in the production of products and services.

Strategic managers study the factors like competitors, demand, market, technology and socio-cultural, political and legal environment.

Companies strong in resources tend to emerge as winners in the segment.

Strategy manager should adopt generic strategies to keep costs and price of expenditure low.

Marketers’ task is to induce initial purchase and to overcome customers concerns over the product features and performance reliability.

Utilize potential buyers’ feedback as they always try to improve the quality of the product and services of the company.

Strategic managers are required to have ample suppliers to offset uncertainty in supply by certain suppliers.

In case of under capitalization, managers must look to tie up with capital rich firms or look to being acquired by financially strong firms.

How to succeed in an emerging industry

Perfect in technology to improve product quality and to develop attractive performance features in the product and service.

Acquire or form alliance with companies strong in technology to out compete rivals.

Adapt to the change in technology market.

Win the early race for industrial leadership by taking bold moves in creating strategies and with risk taking entrepreneurship.

Make it easy and cheap for first time buyers to try the industry as first gen product.

STRATEGIES FOR COMPETING IN TURBULENT HIGH-VELOCITY MARKET

The central strategy making challenge in this kind of an environment is managing change.

Reacting to change

Adjust to the monetary and legal policies of the government.

Launch better products in the market in response to competitors’ offerings.

Respond quick to unexpected changes in buyers’ needs and preferences.

Strategists react and respond quickly to problems that arise.

Anticipating change

Perform market research to study buyers’ behaviour, needs and expectations to get an insight on how the market will evolve and then reacting to change.

Opens up the doors for new opportunities and hence is a better way to manage change than simply react to the change.

Analyze opportunities for going global.

Monitors technological developments to design product’s future path.

Adapt strategies such as strong distribution channel, add/adopt resources and competitive capabilities, improving the existing product line.

Leading the change

Set standards in the industry.

Pioneer new and updated technology.

Introduce new and innovative products that open up a new market or even spur the creation of a whole new industry.

Invest aggressively in R&D to improve product capability and drive the change with technology.

Develop and maintain organizational capabilities quickly ahead of the rivals.

Rely on strategic partnership with outside suppliers and with companies making tie in products for which first the company needs to strengthen its internal resources base.

Companies in depth expertise, speed, adaptation to change, innovativeness, opportunism and resources flexibility is critical for organizational capabilities in order to keep the products and services fresh and exciting enough to change taking place.

Force the rivals to follow.

Set changes in the industry place.

Influence the rules of the game in market.

STRATEGIES FOR COMPETING IN MATURE MARKET

This type of industry moves from rapid growth to significantly slower growth. The industry is said to have become mature when all the potential buyers’ are already users of the industry’s products and services. An industry is said to be matured when there is a need for technologically advanced factors, product innovation factors and marketing driven factors such as demand for products and services, combination of the 4Ps.

Indulge in price-cutting policy for products and services, increased advertising and other aggressive methods to gain market share.

Sophisticated buyers’ indulge in evaluating different brands and use their knowledge to negotiate a better deal with sellers. This will help them in repeated purchases.

Buyers prefer to purchase quality products with the best combination of price and service.

The company’s cash flow is affected by too much advertising but rapidly declining sales.

Difficult to find future users for the existing products.

Penetrate in to foreign market for the domestic market is matured.

Indulge in mergers and acquisition or else be prepared to get the axe.

Adapt cost leadership, market leadership, generic strategies and new technologies there by mergers and acquisition to develop competitive market.

Characteristics of maturing industry

Pruning marginal products and models

The industry introduces many product versions which work against achieving growth and increased manufacturing costs. Pruning marginal products opens the doors for cost savings and permits more concentration on items whose margins are high and where the firm attains a competitive advantage.

Emphasize value chain innovation

Industries that adopt innovation provide better products and service at lower costs even quality and introduce new versions to market. Manufacturers’ can mechanize innovation in terms of high cost activities, redesign of production lines in order to improve labour efficiency and build a flexible manufacturing process. Hence, customized products can be produced with increased use of advance technology.

Strong focus on cost reduction

Companies can select suppliers to supply materials at competitive prices, implement a tighter supply chain system to keep costs low by trimming out cost consuming processes, develop economical product designs, re-engineering, use of e-commerce in internal and external processes and create an economical distribution channel.

Increasing sales to present customers

Companies can take responsibility in expanding its sales to its existing customer base. Mature companies provide complementary items and ancillary service such as sales after sales and studying more ways for customers to use their company’s products.

Purchasing rival firms at bargain price

Purchasing of rival firms at bargain prices can help to create low cost positioning if opportunities are present for greater operating efficiency. It also helps the acquiring company to gain access to the customer base of the acquired company enhancing and enlarging the market share against rival concerns.

Globalisation

Since the domestic market is matured, companies may look to penetrate in to other countries using the domestic firm’s skill reputation. Mature industries in time become strong in resources like market, finance, HR, distribution channels, alliance, mergers and technology.

Building capabilities that are flexible

It is adding new competencies or capabilities that depending existing competence makes them harder to initiate or strive to make core competencies more adaptable to changing customer requirements and expectations.

STRATEGIES FOR FIRMS IN DECLINING MARKETS

Focusing on the growth market segment within the industry

The first competitive approach of strategies for firms in declining industries is to focus on growth market segments. Declining markets are composed of a number of segments or niches, say, one or more of these segments are growing rapidly despite the stagnation of the industry. An astute competitor who focuses on fast growing segments in industries and does a clean job of meeting the needs of the buyers which comprises these segments can often escape stagnation sales and profits and even gain decided competitive advantage in the industry.

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Differentiating on the basis of quality and frequency of product innovation

This strategy either enhances quality or innovation thereby rejuvenating demand by creating important new growth segments or inducing buyers to trade up in the industry. Successful product innovation opens up avenues for competing besides meeting or beating rivals’ price of product in the market. Being successful in differentiating with upgraded innovation has an added advantage. It becomes difficult for firms to imitate as it is expensive.

Become a low cost producer

Companies in declining industries can improve profit margins and RoI by pursuing innovative cost reduction techniques. The potential ways to save costs are –

Cut down on marginally beneficial activities in the value chain

Outsource those activities that can be performed cheaply by sub contractors or other firms in the business

Using e-commerce technology to redesign internal business processes to save costs

Consolidate underutilized production facilities

Widen distribution channels to ensure the unit volume needed for low cost production in factory

Close down low volume, high cost retail outlets

Pruning marginal products from the firm is offering

CONCLUSION

Managers who believe in strategic decision making to be the success path for their firm, then, mentioned above are some of the strategies or weapons that they can use in different market scenarios that the industry is facing and steer their firms to success.

What are the strategies for emerging industries?

What can be a strategy for competing in emerging markets *?

What is emerging industry in strategic management?

What are the strategies a company can pursue when demand is falling?