declining industry strategya framework for analysing the nature and causes of decline in an industry and for identifying strategies most appropriate to the firm operating in such an environment. Although an industry which has moved into the decline phase of the PRODUCT LIFE CYCLE is characterized overall by falling demand and problems of excess capacity, it nonetheless may still offer attractive returns to firms possessing COMPETITIVE ADVANTAGES over rival suppliers. For others, immediate exit from the industry rather than hanging on may be appropriate to the situation. Each industry differs in its makeup, so that an appraisal needs to be made of:
- the particular reasons for decline, the rate at which demand is declining and whether there are growth segments in the market;
- the structure of the market (see MARKET STRUCTURE) in terms of levels of MARKET CONCENTRATION, buyer characteristics and factors influencing the volatility of competition;
- the firm's own perceived strengths and weaknesses vis-à-vis other competitors in the industry (see SWOT ANALYSIS).
A number of strategic possibilities will emerge from this evaluation including:
- to hold or increase the firm's investment in the market by, for example, MERGER/TAKEOVER to expand its market share and, simultaneously, remove excess capacity from the market. This is a high-risk strategy but acceptable if the firm possesses competitive advantages (for example, low costs or superior products) and the industry itself exhibits certain favourable endgame characteristics, for example a slow rate of decline in overall demand coupled with the existence of profitable market segments;
- to shrink selectively – this strategy involves refocusing the firm by exiting from unprofitable sectors and remaining in profitable ones;
- to milk the investment – the firm would continue its operations with a minimum of expenditure and make no effort to maintain its market position;
- to divest now – sell the business to competitors wholly or in part, or liquidate. See DIVESTMENT. See BUSINESS STRATEGY, BARRIERS TO EXIT.
Collins Dictionary of Business, 3rd ed. © 2002, 2005 C Pass, B Lowes, A Pendleton, L Chadwick, D O’Reilly and M Afferson