ACCA Strategic Professional · Strategic Business Leader · Competitive forces
Orlin Telecom sells fixed-line services in a declining market. Management argues that because the industry is in decline, it should immediately cut all investment and harvest. A consultant notes that several rivals are also leaving, leaving a few firms with loyal customers and little overcapacity. Which strategy is best supported by the life cycle and competitive forces analysis?
A leadership or niche strategy is best supported. In decline, the right approach depends on remaining demand and rivalry. Because competitors are exiting, overcapacity is low and customers are loyal, so the firm can profitably serve what remains rather than automatically harvesting.
- AConsider a leadership or niche strategy to capture the remaining demand, since rivalry may ease as competitors exitCorrect
- BHarvest immediately, as decline always means rivalry is at its most intense
- CDiversify into the growth stage of the same product to reverse the cycle
- DIncrease capacity to deter exiting firms from selling assets
Explanation
Decline strategies depend on the intensity of rivalry, exit barriers and remaining demand. Where rivals exit and demand is loyal, leadership or niche strategies can be profitable. Immediate harvest is not always best, and adding capacity would worsen overcapacity.
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