STRATEGIES FOR DECLINING INDUSTRIES

The conventional strategy for declining industries are either to divest or to harvest, that is, to generate the maximum cash flow from existing investments without reinvesting. However, these strategies assume that declining industries are inherently unprofitable. There are four strategies that can be pursued either individually or sequentially in declining industries.
These four strategies are;

• leadership
• Niche
• harvest
• divest

LEADERSHIP: by gaining leadership, a firm is well placed to outstay competitors and play a dominant role in the final stages of the industry life cycle. Once leadership is attained, the firm is in a good position to switch to a harvest strategy and enjoy a strong profit stream from its market position. For example, by supporting more stringent environmental controls that make it costly for them to stay in business.

NICHE: Identify  segment that is likely to maintain a stable demand and that is likely to maintain a stable demand and that any other firms are unlikely to invade, then pursue a leadership strategy to establish dominance within the segment. The most attractive niches are those that offer the greatest prospects for stability and where demand is most inelastic.

HARVEST: By harvesting, a firm maximizes its cash flow from existing assets, while avoiding further investment. A harvesting strategy seeks to boost margins wherever possible through raising prices and cutting costs by rationalizing the number of customers.

DIVEST: If the future looks bleak, the best strategy may be to divest the business in the early stages of decline before a consensus has developed as to the inevitability of decline. Once industry decline is well established it may be extremely difficult to find buyers.

         Choosing the most appropriate strategy requires a careful assessment both of the profit potential of the industry and the competitive position of the firm.