Kathryn Harrigan

End-Game Strategies for Declining Industries

Coauthor(s): Michael Porter.

Abstract:
Demand in an industry declines for 4 principal reasons: 1. Technological advances foster substitute products. 2. The customer group shrinks. 3. Buyers' tastes change. 4. Costs of inputs rise and shrink demand. The strategy a company should follow in an industry's decline depends on its relative strength in the industry. Companies' expectations concerning decreased demand will affect planning in an end-game situation. Several exit barriers exist for a company wanting to leave an industry, including: 1. durable and specialized assets, 2. high costs of exit, 3. strategic considerations, 4. managerial resistance, and 5. social barriers. Leaders in an industry may attempt to reap high profits by becoming one of a few remaining companies. Conversely, a lesser known company may recover more of its investment by selling in the early stages of decline. In selecting the proper strategy, managers must match remaining opportunities in an industry with their companies' positions. Factors that helped or hindered a company while the industry was growing are not necessarily significant during an end game.

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