It is very challenging to operate business firms in an emerging industry.
Before we proceed toward identifying the strategic challenges in an emerging industry, let us define it first.
And, then we would explore the strategy-making challenges in the emerging industry, be followed by identification of possible strategies to pursue in the emerging industry for success.
Emerging Industry Defined
An emerging industry is an industry which is at its early stage of development. In fact, it is an embryonic or ‘infant industry.’ It is just beginning to develop or emerge.
An emerging industry is characterized by few competitors, high growth potential, the uncertainty of demand, the dominance of proprietary technology, wide differences in product quality, low entry barriers, difficulty in having ample supply of raw materials, and so on.
Although growth potential in the emerging industry is high, the actual growth at this stage is slow. Slow growth is mainly attributed to customers’ unfamiliarity with products.
Other reasons include usually high prices due to the producers’ inability to achieve economies of scale and weak distribution channels.
Strategy-Making Challenges in Emerging Industry
Michael Porter has pointed out several strategy-making challenges that manager’s face while competing in emerging industries. These are as follows:
- Doubts exist about the functioning, growth, and size of the market. Managers cannot make useful projections of sales and profits due to lack of historical data. Thus, they mostly depend on guesswork.
- Proprietary technology dominates the industry. The owners of the technology usually do not allow others to use it. Success mostly depends on patents and unique technical expertise.
- Uncertainty prevails regarding the product attributes that may win customer acceptance. Uniformity is difficult to find in product quality and product performance. Therefore, competition in the industry centers around each company’s strategic approach to technology, product design, and marketing.
- Entry into the emerging industry is relatively easy. As a result, financially and professionally strong companies may enter into the industry if there is a high growth prospect.
- In an emerging industry, all buyers are first-time users of products. Therefore, marketing managers must try to induce an initial purchase.
- In an emerging industry, the products are first-generation products (absolutely new). Thus, many potential customers defer their purchase until the quality improves.
- The firms in the emerging industry most often fail to attract the suppliers of raw materials to gear up their production. This happens due to the immature stage of the industry. This creates hurdles in getting a regular and adequate supply of raw materials.
Strategy Options in Emerging Industries
Several strategy options are available to entrepreneurs in the emerging industry;
- A low-cost strategy is viable to discourage potential competitors to enter into the industry. Even a company can use price-cuts to attract price-sensitive buyers.
- Differentiation strategy may be adopted based on technological or product superiority.
- A company may adopt a cooperative strategy (strategic alliance) by forming a partnership with key suppliers of materials and components.
- A company may form strategic affiance with other companies having the technological expertise to outcompete strong competitors.
- Acquisition strategy may be followed to acquire special skills or capabilities so that the company can weaken the competitors based oh technological superiority.
- A company may enter into a joint venture agreement (if there are financial constraints) to cover greater geographical areas or pursue new customer groups.