Strategic Business Insights: Market Growth and Globalization

Posted on Dec 16, 2024 in Economy

Strategic Implications of Market Growth

1) Faster Growth for New Products:

  • Mass Media: Quickly spreads awareness to large audiences.
  • Low-Cost Mass Production: Reduces costs, making products affordable and boosting sales.

2) Factors Affecting Market Growth:

  • Relative Advantage: Clear benefits equal faster growth.
    • Example: Electric cars save money and help the environment.
  • Complexity: Simpler products grow faster.
    • Example: Easy-to-use smartphones grew faster than complex home systems.
  • Compatibility: Products that fit daily life grow quickly.
    • Example: Fitness trackers blend into daily routines.
  • Observability: Visible benefits encourage adoption.
    • Example: People buy fitness trackers after seeing others’ results.
  • Complementary Products: Add-ons boost growth.
    • Example: Phone cases and apps increased smartphone adoption.
  • Trialability: Risk-free trials attract customers.
    • Example: Free streaming service trials encourage subscriptions.

Declining Industries

Demand is shrinking, and the total market is getting smaller. Competition increases, and profits fall. Example: DVD rental industries.

Reasons:

  1. Technological Change: New technology makes old products antiquated.
    • Example: Streaming replaced DVDs.
  2. Social Trends: Changing preferences reduce demand.
    • Example: Soda consumption fell due to health awareness.
  3. Demographic Shifts: Population changes impact markets.
    • Example: Aging societies hurt fast-fashion sales.

Increased Competition in Declining Markets

Competition Intensifies When:

  1. Rapid Decline: Market shrinks rapidly, leading to tougher competition.
    • Example: Smartphones quickly overtook basic cellphones.
  2. High Fixed Costs: Companies fight harder to cover overhead costs.
    • Example: Airlines compete fiercely due to expensive infrastructure.
  3. High Exit Barriers: Expensive to leave, so firms keep competing even at a loss.
    • Example: Steel manufacturers with costly equipment.
  4. Commoditized Products: When products are identical, price wars increase.
    • Example: Gasoline providers compete mainly on price.

Strategies for Declining Industries:

  1. Leadership: Dominate the market by eliminating competitors.
    • Example: Amazon outcompeting small bookstores.
  2. Niche: Focus on segments that decline slower.
    • Example: Local newspapers keeping loyal readers.
  3. Harvest: Maximize cash flow while minimizing investment.
    • Example: DVD rental businesses cutting costs before exiting.
  4. Divestment: Sell the business and exit the market.
    • Example: Coal companies selling assets to shift to renewables.

Drivers of Cost Advantage

  • Economies of Scale: Making more lowers costs per item. Specializing tasks improves efficiency.
  • Learning by Doing: Workers and companies improve with practice, reducing mistakes and waste.
  • Smarter Production: Use better methods, technology, and simplified processes.
  • Simple Design: Use cheaper, standard parts and easy-to-produce designs.
  • Cheaper Inputs: Source affordable materials and labor; negotiate better deals.
  • Use Resources Fully: Avoid waste and adjust quickly to demand changes.
  • Fix Inefficiencies: Improve management, teamwork, and motivation to increase productivity.

Globalization

Increasing connection and interdependence of economies around the world.

Characterized by:

  • Similar Habits and Tastes of customers worldwide (McDonald’s menus are similar globally).
  • Interconnected Decisions (Economic and political actions in one country affect others) (The 2008 U.S. financial crisis impacted global markets).
  • Free Movement (Easier trade, finance, and labor across countries) (Indian IT workers providing services to U.S. companies).

Accompanied by:

  • ICT Revolution: Technology makes global trade and work possible anytime, anywhere.
  • Multinational Companies: Firms operate in multiple countries, like Apple or Nike.

Globalization Impact:

  • Increased competition.
  • Increased and unified customer expectations around the globe.
  • Increased customer base.
  • Economies of scale (if the amount of units increases, the cost per unit will decrease).
  • Greater choice of location.
  • External growth opportunities.
  • Increased access to sources of finance.

Cost Advantage vs. Differentiation Advantage

  • Cost Advantage: Offering a similar product at a lower cost than competitors, attracting customers with lower prices.
  • Differentiation Advantage: Providing a unique product that customers value, allowing the company to charge a higher price.

Multinational Companies (MNCs)

A company that operates in two or more countries, with its headquarters in the home country. Examples: Apple, Coca-Cola, Nike, Samsung, Walmart.

Positive Impacts on Host Countries:

  1. Job Creation: MNCs provide thousands of local jobs.
    • Example: Amazon employs many in India for warehouses and tech roles.
  2. Boosting the Economy: Contribute to GDP through taxes and investments.
    • Example: Amazon boosts Brazil’s e-commerce and economy.
  3. Sharing Skills and Technology: Train local workers in advanced tech.
    • Example: Amazon teaches cloud computing through AWS in developing countries.
  4. Encouraging Competition: Push local firms to improve quality and efficiency.
    • Example: MercadoLibre modernized in Mexico to compete with Amazon.

Negative Impacts on Host Countries:

  1. Job Losses for Local Firms: Small businesses may close due to competition.
    • Example: Spanish retailers shutting down due to Amazon’s dominance.
  2. Profits Sent Back to the Home Country: Reduces local benefits.
    • Example: Amazon sends earnings from Spain back to the U.S.
  3. Overuse of Natural Resources: Harms the environment.
    • Example: Supply chains exploit the Amazon Rainforest.
  4. Government Pressure: MNCs demand tax breaks, disadvantaging local firms.
    • Example: Amazon negotiates favorable tax deals.
  5. Poor Working Conditions: Suppliers cut costs by underpaying and mistreating workers.
    • Example: Unsafe conditions in Bangladesh factories producing global brands.