1. 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

2. 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

3. 0. Stages of industry development General pattern: time Creation Growth Maturity Decline Total industry turnover

4. 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 Oligopoly Monopolistic competition

5. 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 Privatisation Changing conditions of access, price setting, and service requirements Re-regulation Liberalisation Enel, 1962 Enel, 1999 Electricity sector in Italy, 1999

6. 1. Strategy in emerging industries Main features: 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 e.g., biotech

7. 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')

8. 1. Strategy in emerging industries Also consider, emerging industries in new (emerging) markets: Early movers can establish their presence and brand first; make pre- emptive moves into technology standards and distribution channels; acquire loyalty of pioneering customers; and set other firms as 'followers' Newly industrialised countries Not industralised yet, but not least developed either

9. 2. Strategy in rapidly growing industries Main features: 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 e.g., ISP services, some years ago

10. 3. Strategy in slow-growth, mature industries Main features: 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) e.g., car industry in Italy

11. 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)

12. 4. Strategy in stagnant industries Main features: 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) e.g., CD makers

13. 5. Strategy in turbulent, fast changing industries Main features: 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 e.g., publishing industry

14. 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

15. 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

16. 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.