An industry is called as going through decline period when it is confirmed that its sales figures have been showing a trend of decline for a very long period and there is no hope of reactivation in real sense.
The competition within the industry becomes severe under the conditions when sales have reduced. The extent and trend of this change vary depending upon the forecast regarding the future demand and its uncertainty as well as on the basis of existence of barriers against withdrawal. Further, the negotiation power vis-a-vis the related areas like the suppliers of raw material and parts and the distribution and transportation also weakens.
It is common to consider the rule of selecting one of the two strategies, namely the harvesting strategy in which the capital investment is recovered by earning and increasing the cash flow as far as possible and the immediate withdrawal from the operation during the period of decline, besides the positives efforts to avoid any fresh investments. However, the strategy which the enterprise must adopt during the decline period is also not to so simple to decide in actual practice.
Even in case of decline in industry, there remains some demand ultimately, provided the need has not dried up totally or the alternate product has not driven away the original product completely. Consequently, if a few companies survive in the industry, it may be possible to carry out a rather congenial and interesting business. In such cases, the position of an enterprise in the overall industry can be maintained or improved depending upon the competition environment and the state in which the enterprise is placed. It is also possible to ensure only a particular segment for the business.
Consequently, the survival of only a small number of enterprises in the industry, depends on how many other enterprises withdraw from the field. There are various strategies which can be adopted to take care of such a situation. These include clearly showing the difference in the strength one processes vis-a-vis its competitor or by simply buying the equipment of the rival company and abandoning it. There is another technique of reducing the withdrawal barriers by taking over the OEM production and the production of supplementary parts etc. Even after this type of strategy has shown its results, it may be possible to sustain the position, which has been ensured through this exercise for a longer period and there is also a possibility of shifting to the harvesting strategy or the withdrawal strategy.
Finally, the main points related to harvesting strategy or withdrawal strategy are briefly explained below.
1. Harvesting strategy
In the harvesting strategy, the new investment is restricted very vigorously and efforts are made to recover the capital investment to the maximum, ultimately paving the way for withdrawal. In concrete terms, the small customers are dropped, the product line is organised and integrated. The service standards are lowered and the expenses on public relations exercise are cut to improve the cash flow. Subsequently, it leads to disposing off the operation or resorting to liquidation.
For a smooth perusal of this type of strategy, the enterprise must have the privilege of an industrial environment where the competition is not very severe even during the decline period and the enterprise should have the sufficient strength. There are not many enterprises which can maintain the trust of supplier as well as the customers even while resorting to this type of strategy. Further, it is also a very difficult problem to maintain the high morale of employees when this type of strategy is being pursued.
2.Withdrawal strategy
In the case of withdrawal strategy, the pre-requisite condition is the early disposal of assets at a higher cost during early stage. Once the withdrawal of any industry becomes known publicity, the cost of its assets reduce very widely. Withdrawal from a particular operation does not affect the said operation alone, it has more influence in relation to the other departments of company as well as enterprise image. Therefore, there are many cases, when OEM supplies are obtained from other companies even when the in-house operations have been discontinued. In this way, the business is continued and withdrawal is affected part by part now.
The selection of strategy during the decline period may be decided after due consideration to the further demand forecast and the strengths as well as weaknesses of one’s own company and those of powerful rival company. The analysis of withdrawal barriers and the strategic relationships with the other division in the company also need to be considered.
The competition within the industry becomes severe under the conditions when sales have reduced. The extent and trend of this change vary depending upon the forecast regarding the future demand and its uncertainty as well as on the basis of existence of barriers against withdrawal. Further, the negotiation power vis-a-vis the related areas like the suppliers of raw material and parts and the distribution and transportation also weakens.
It is common to consider the rule of selecting one of the two strategies, namely the harvesting strategy in which the capital investment is recovered by earning and increasing the cash flow as far as possible and the immediate withdrawal from the operation during the period of decline, besides the positives efforts to avoid any fresh investments. However, the strategy which the enterprise must adopt during the decline period is also not to so simple to decide in actual practice.
Even in case of decline in industry, there remains some demand ultimately, provided the need has not dried up totally or the alternate product has not driven away the original product completely. Consequently, if a few companies survive in the industry, it may be possible to carry out a rather congenial and interesting business. In such cases, the position of an enterprise in the overall industry can be maintained or improved depending upon the competition environment and the state in which the enterprise is placed. It is also possible to ensure only a particular segment for the business.
Consequently, the survival of only a small number of enterprises in the industry, depends on how many other enterprises withdraw from the field. There are various strategies which can be adopted to take care of such a situation. These include clearly showing the difference in the strength one processes vis-a-vis its competitor or by simply buying the equipment of the rival company and abandoning it. There is another technique of reducing the withdrawal barriers by taking over the OEM production and the production of supplementary parts etc. Even after this type of strategy has shown its results, it may be possible to sustain the position, which has been ensured through this exercise for a longer period and there is also a possibility of shifting to the harvesting strategy or the withdrawal strategy.
Finally, the main points related to harvesting strategy or withdrawal strategy are briefly explained below.
1. Harvesting strategy
In the harvesting strategy, the new investment is restricted very vigorously and efforts are made to recover the capital investment to the maximum, ultimately paving the way for withdrawal. In concrete terms, the small customers are dropped, the product line is organised and integrated. The service standards are lowered and the expenses on public relations exercise are cut to improve the cash flow. Subsequently, it leads to disposing off the operation or resorting to liquidation.
For a smooth perusal of this type of strategy, the enterprise must have the privilege of an industrial environment where the competition is not very severe even during the decline period and the enterprise should have the sufficient strength. There are not many enterprises which can maintain the trust of supplier as well as the customers even while resorting to this type of strategy. Further, it is also a very difficult problem to maintain the high morale of employees when this type of strategy is being pursued.
2.Withdrawal strategy
In the case of withdrawal strategy, the pre-requisite condition is the early disposal of assets at a higher cost during early stage. Once the withdrawal of any industry becomes known publicity, the cost of its assets reduce very widely. Withdrawal from a particular operation does not affect the said operation alone, it has more influence in relation to the other departments of company as well as enterprise image. Therefore, there are many cases, when OEM supplies are obtained from other companies even when the in-house operations have been discontinued. In this way, the business is continued and withdrawal is affected part by part now.
The selection of strategy during the decline period may be decided after due consideration to the further demand forecast and the strengths as well as weaknesses of one’s own company and those of powerful rival company. The analysis of withdrawal barriers and the strategic relationships with the other division in the company also need to be considered.