8.3 Analysing Industry : Life Cycle
INDUSTRY LIFE CYCLE
Like other living creatures, industry also has its circle of life and imitates the human life cycle. The various stages of industry growth are:
- Innovation, technological development, initial phase.
- Growth phase.
- Competitive or maturity phase.
- Declining phase.
Whenever a new product is launched in the market there are a few manufacturers and because of that the product has high demand. In the initial phase of production the demand is high because the companies are started based on product demand only. However, the profit margin is normally very less as the industry is in infancy stage and unable to utilise maximum resources.
In the initial stage of the industrial life cycle of a new industry the technology as well as the product are relatively new and have not reached a state of perfection. This is the stage when the new industry develops the business. At this stage, the new industry normally takes shape when an entrepreneur overcomes the twin problems of innovation and invention, and works out how to bring the new products or services into the market. The best example is that of the early 90s when a few companies like Infosys and Wipro started in India, finding business opportunities in IT services. During that time the IT service industry was in a fragmented stage.
This is also immediately followed by the innovation phase wherein the product innovation is less important but the process innovation begins. Therefore, because the product is more or less tested now, the question that emerges is how best the process of production can be improved to have a competitive edge. New competitors enter an industry after studying the business potential. The investment at this stage is also a bit risky. It is because there is no guarantee that the company will be able to overcome the business challenges despite having technology and processes in place.