Question

Answer the below question in your own words please do not copy and paste.

4. What is an industry that is in the maturity phase of the life cycle? How intense is the competition?

5. What is an example of an industry in the decline stage? What strategies are the current firms following?

6. Can you think of a firm that has completed a successful (or unsuccessful) turnaround?

Answer 1

Answer 4

An industry has five stages in its lifecycle. These stages are called 1 Startup 2 Growth stage 3 Shakeout stage 4 Mature Stage and 5 Decline stage. The growth rate and age of the stages are shown in the figure below

Source: https://wikicase.fandom.com/wiki/Industry_Life_Cycle

In the maturity stage, the company stops growing at a faster rate and it continues doing business at a natural rate of growth (I.e. equivalent to GDP growth). The companies in this stage have stability but little growth opportunity which led them with excess cash. Thus, the companies in this industry have a high dividend payout ratio. The cash flows in maturity stage are as follows

Example of a company in the maturity stage is the breakfast cereal is an industry. In the breakfast cereal industry, the companies have achieved high penetration and it is increasing very slowly.

The mature market industries generally have 3-4 firms covering most of the market. The airline industry is also an example of a mature industry.

The level of competition is low to moderate in the mature stage. The companies have fix market share and there is low flexibility in it. The good thing in this stage is that there is less chance of market decline due to high customer loyalty but at the same time the probability to capture competitor's market is also very low. Hence, the strategies used in such industry is low-cost leadership.

Answer 5

The cash flows industry in a decline stage is as follows

There are plenty of examples of industries which are declining or dying. These industries are easily identified by analysing their financial statements. Some such industries are as follows

1. Video rentals and DVDs

With the rise of online streaming services such as Netflix and AmazonPrime etc. The business of DVD is declining and the negative growth rate is increasing Year on year.

2 Database and directory publishing

The rise of internet and cloud has provided the facility to store numerous data online and with an increase in the steps taken towards cyber security and surge in trust of people computer storage has led to the downfall of database and directory publishing.

Some other examples are online mortgage brokers, data recovery services etc

In the decline stage companies have a huge burden to maintain their market share and thus they generally reduce the price. They also reduce sales and promotion expense and reduce the number of outlets. The companies try to find alternative ways of using the product.

Answer 6

Apple is a great example of a complete turnaround. In 1997 the company was on the verge of bankruptcy but with the joining of steve jobs, the company succeed in overcoming the difficult times. First, they dropped loss-making products, entered in collaboration with partners like Microsoft which made an investment in Apple and developed MS office for Mac. The company then came with its life-changing idea of iPhone that has made it one of the top company in the world.

Another example of a complete turnaround is Eicher motors. Which has closed or sold is most of the business except two: bikes and trucks. After this tough decision, the company focused on its bikes business and shown very impressive results with a much higher growth rate and better ratios than the industry average.