Industry Evolution

Topics: Strategic management, Barriers to entry, Industry Pages: 5 (1242 words) Published: May 29, 2012


The purpose of this study is to know the industries grow through a series of stages from growth through maturity to decline. The industry life cycle is useful for explaining and expecting trends among the six forces that drive industry competition. There are two types of industry which are fragmented industry and consolidated industry. Fragmented industry occurs when the people always buy the product when an industry is new. When an industry enters maturity, it occurs in consolidated industry. Based on (Horry Domash, 2009) fragmented markets that have many participants are usually price- competitive make the markets in lower profit margins. Keywords: reasons on why the industries become fragmented, strategies in fragmented industry Industry evolution is more focus on its relationship with innovation. It does refer to the changes in industry characteristics, the processes of firm entry, exit and growth. There are three types of industry evolution which are an emphasis on industry change as a dynamic process, an embrace of path- dependence and a search for experimental regularities and irregularities across industries. The literature on industry evolution provides vision into the interdependencies among industry change, a firm’s strategic choices and changes in the basis of competitive advantage. (Charles W.L. Hill, 2007) defined fragmented market is an industry that consists of a large number of small or medium sized companies, none of which is in a position to determine industry prices. Besides, fragmented industry is where no firm has large market share and each firm serves only a small piece of the total market in competition with others by (J.David Hunger). The consolidation occurs when the business serve one particular market merge together rather than compete to profits. .

Reasons on why the industry becomes fragmented
(Nasrul, 2012) state the reason for the fragmented industry are low barriers to entry, the highly focused market for goods and services requires extreme knowledge by firms, high transportation costs, lack of regulation and high need for local firms that always inspire more trust in their customers. Low overall entry barriers, lack of economies of scale, high transportation costs, high inventory costs, no advantages of size when dealing with buyers or suppliers, diseconomies of scale in some important aspect, diverse market needs, smaller firms are more efficient, high product differentiation based on image, exit barriers, local regulation, government prohibition of concentration and newness are the reasons of fragmented industry happened. (Donald J. Bowersox). Based on (Bananarchy-ga, 2003), discussed that the fragmented industry occurs because of low barriers to entry, highly specialized market, high transportation costs, lack of standardization or lack of need for it and trust. According to (Gregory G.Dess, 2006), the factor of fragmented industry is it indicates that there are customers for this type of products, lots of competition who is dominant, lots of other companies talking about the market and advertising in the market. (Gareth R Jones, 2012) presents that many industries are fragmented because there are few barriers to entry such as in the restaurant industry. High transportation cost also can keep an industry fragmented for regional production only to satisfy their customer needs (Charles W.L. Hill, 2007) and (Gareth R Jones, 2007) said that the industry become a fragmented because customer needs are specialized that only small jobs lots of products are required. Refer to (Daniel J, 2006), there are some examples of fragmented industries which are book publishing, landscaping and plant nurseries, auto repair, restaurant industry, clothing retailers, meat markets, barbers, furniture, cement building, agriculture, computer...

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