Industry Life Cycle

In: Business and Management

Submitted By lixwh1
Words 3012
Pages 13
Industry Life Cycle

Evidence on entry, exit, firm survival, innovation and firm structure in new industries is reviewed to assess whether industries proceed through regular cycles as they age. A leading depiction of the evolution of new industries, the product life cycle, is used to organize the evidence it is shown that the product life cycle captures the way many industries evolve through their formative eras, but regular patterns occur when industries are mature that are not predicted by the product life cycle. Regularities in entry, exit, firm survival and firm structure are also developed for industries whose evolution departs significantly from the product life cycle.

Definition of 'Industry Lifecycle'
A concept relating to the different stages an industry will go through, from the first product entry to its eventual decline. There are typically five stages in the industry lifecycle. They are defined as:
i. Early Stages Phase - alternative product design and positioning, establishing the range and boundaries of the industry itself.
Ii.Inovation Phase - Product innovation declines, process innovation begins and a "dominant design" will arrive. iii. Cost or Shakeout Phase - Companies settle on the "dominant design"; economies of scale are achieved, forcing smaller players to be acquired or exit altogether. Barriers to entry become very high, as large-scale consolidation occurs. iv. Maturity - Growth is no longer the main focus, market share and cash flow become the primary goals of the companies left in the space.
v. Decline - Revenues declining; the industry as a whole may be supplanted by a new one.
Industry Life Cycle Analysis
A form of fundamental analysis involving the process of making investment decisions based on the different stages an industry is at during a given point in time. The type of position taken will depend on firm specific…...

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