The number of industry competitors is on the decline

Symptom: The industry has undergone a shakeout; the number of competitors has declined significantly.

Implications for the market:

  • Hostility develops when an industry's capacity growth begins to outrun demand, creating margin pressure that eventually forces weaker competitors out of the industry. The shakeout of competitors being experienced by the industry, therefore, is a normal stage in the cycle of competitive hostility.

  • Unfortunately, the consolidation of competitors does not necessarily shrink industry capacity. The productive capacity of withdrawing or failing competitors is not shut down; rather, it is sold to surviving firms. Those firms then operate the facilities because most productive capacity can produce an attractive marginal contribution; shutting down the facility would reduce revenue more than cost.

  • Furthermore, when one company acquires another, its cost structure is often lowered because overhead can be reduced. It may well become a more efficient competitor.

  • As the industry continues its shakeout, things are likely to get still tougher before they improve.

Recommended Reading
For a greater overall perspective on this subject, we recommend the following related items:


Perspectives: Conclusions we have reached as a result of our long-term study and observations.

  • "Making Acquisitions Work in Hostile Markets"
    Strategic acquisitions can help a company through hostility, but the acquisition target must add the right customers to the buyer's base and reduce unit costs without sacrificing customer service.

  • "Use Subtle Strategy in Tough Markets"
    A hostile market operates differently than a market with "normal" competitive conditions. But as difficult as a tough market can be, it can also present an astute management team with an unusual opportunity.

  • "What Makes Returns High?"
    At any point in time, most high returns can be traced to external factors that enable the company to charge high prices. Management really can not claim credit. Long term high returns, however, usually are the result of management efforts to control cost.

  • "What We Do Know Can Hurt Us"
    A little knowledge is a dangerous thing. For the business leader, the very abundance of knowledge poses a danger.