4. The concept of development of mining and chemical companies in a mature industry
Features of strategic development of mining and chemical companies in a mature industry
In modern management there are several concepts of the life cycle with different objects of study, such as industry, enterprise, product, technology and others. The study of the life cycle of an economic system as a branch devoted to the work of M. porter, A. Thompson, A. Strickland, j.Moore, K. Simons and other scientists.
The concept of the industry life cycle, formulated by George. Moore explores the various stages of its development from the point of view of consumers .
K. Simons, on the basis of empirical research also made a number of conclusions, one of which is that the maximum number of producers at the early stages of the industry life cycle, and then decreases significantly .
I.] in his writings, shared the cycle of demand for a few different periods (phases), which, in turn, determine the stage of development of the industry, which is represented in Fig. (figure 4.1.)
The most well-known approach to analyzing the industry life cycle proposed by M. porter[70,71], which characterizes every stage of the life cycle from the point of view of competition development. At each stage the scientist assigns industry-specific characteristics such as the number and size of companies, major economic indicators, the level of technological and strategic uncertainty, barriers to entry and exit, competition intensity and a number of other.
So, any industry according to M. porter has a life cycle that typically consists of the following stages: generation stage, growth, maturity and decline. Each of these stages is characterized by certain features of competition and compete.
Based on this model, all industry can be divided into four groups: emerging, growing, Mature industries experiencing decline.
The emerging industry is such an industry that is in its infancy and companies are just starting their production and business activities. At this stage there is active improvement of technological and production processes, an increasing number of staff are actively launching new or acquiring existing production capacity, the formation of logistics and distribution network, etc.
Rather dynamic growth, bystry change of the equipment and technologies, constant growth of requirements of consumers, increase in their number, constant growth of market capacity, etc. in turn is characteristic of the growing branches.
The mature branch differs in delay of growth rates, there is a specific formation of demand generally due to repeated purchases. If demand grows in branch more slowly, than on average on economy, or is negative, it is possible to say that the branch is at a recession stage.
Fig.4.1. Stages of development of branch
The same branches can be in various countries at various stages of life cycle.
Branches which for a long time are in the market treat mature branches. Growth rates in such branches usually don't exceed 5% a year that approximately corresponds to growth rates of world economy in general and to increase in number of consumers in the world. First of all, it is connected with the fact that rather high extent of saturation of the market is observed. All potentially possible buyers already became real users of a product, and demand for production in branch is formed generally due to repeated purchases and can increase only owing to inflow of a small amount of new consumers or due to increase in volumes of consumption of production by former buyers . The entry of branch in a maturity and the corresponding delay of growth rates significantly changes the branch competitive environment .
Often at a maturity the market becomes more concentrated, differentiation of a product decreases, and the companies concentrate on universal reduction of expenses.
It is considered that the highest point of body height of number of personnel and branch production capacities is already passed in such branches.
Nevertheless, offensive of a maturity can be slowed down because of emergence in branch of new technologies, technical and technological improvements, and also emergence of new types of production, new ways of its use and other driving forces which can seriously rejuvenate market demand.
According to I. Ansoff, from the point of view of life cycle of demand retardation of body height and a maturity are not distortions, and inevitable consequences of economic development of economic system. The question of when it happens that is what will be duration of life cycle of demand from origin prior to saturation  becomes the main issue at the same time.
Thus, according to the scientist if the firm wants to support the growth and successful functioning, it is necessary to care constantly for addition to a set of kinds of activity new and to be exempted from those which won't be compounded with new reference points of development of the company. It is the first important task from the point of view of strategic management. The second important task is forecasting of change of phases of a cycle of demand and well-timed revision of the development strategy of the company according to the changing conditions of the competition [ 13].
Mature branches are characterized by the following main symptoms and implications are presented in the figure 4.2. [70,71,73,81]:
Fig. 4.2. Main symptoms and implications of mature branch
- 1. Rather low growth rate of consumer demand stimulates an exacerbation of competitive fight for a market share in branch. The companies often use the defensive strategy of business for deduction of the existing market share. The companies fight for clients by means of reduction of prices, various discounts, activization of advertizing campaigns, establishment of more close ties with consumers of production, etc. In this situation use of such aggressive receptions as sudden reduction of prices, sharp expansion of advertizing activity, sharp change of strategy of business, etc. is quite usual.
- 2. The increasing part of sales of the companies in branch is carried out to regular customers that causes intensifying of competitive pressure from consumers at commission of repeated purchases. However consumers become more exacting to quality of goods and the accompanying services. As most of buyers already have experience of use of production and are rather well familiar with production of competitors, they can estimate various brands of goods and use this knowledge for receiving the best conditions upon purchase. Extensive expansion of sales of the companies is characteristic of fast-growing branches, and in a maturity it is possible only in exceptional cases.
- 3. The dominating impact on successful conducting competitive fight in the market is exerted by the level of expenses and quality of service of consumers. Rivalry of the companies is displaced towards the price competition and in a services sector. If all producers of goods begin to offer production with properties which suit consumers, then their choice will be made in favor of those sellers who offer the best combination of the price and service.
- 4. Continuous or temporary decrease in profitability of the companies in branch. Delay of growth rates, the escalating competition in branches, the amplifying competitive pressure from more exacting consumers and the periods of underutilization of production capacities exert the defining impact on profitability of the companies in branch. The weakest companies fall into the most difficult situation and can be forced out from branch. In branch growth of number of merges and absorption, concentration of production, integration at basic raw material resources, consolidation of branch is observed.
- 5. Threat of overproduction in branches, delay of rates of introduction of new production capacities. New production capacities can be entered only if they differ in essential advantages in comparison with the available branch capacities (ensuring access to raw materials, lower production expenses, Bol a favorable location of capacities, more perfect equipment and technologies, etc.). Low growth rates of branch mean decrease in rates of expansion of production capacities. Each company has to control plans of expansion of competitors and reasonably increase the production capacities to minimize probability of emergence of overproduction in branch. At this stage of development of branch at low growth rates essential increase in production capacities will have an adverse effect on profits of the company and on their prospects in the future.
- 6. Strengthening of the international competition. The national companies seeking for growth begin to look for possibilities of sale of the production for export. Actions for transfer of production capacities to the countries with lower costs of raw materials, cheaper manpower, and also more convenient location in relation to transport and logistic capacities or end users are characteristic of some companies which look for opportunities for decrease in expenses. Leadership into branches passes to those companies which managed to reach strong competitive positions and to win a considerable share in the most part of the main world markets.
- 7. Difficulties with updating and a conclusion of new production to the market, and also with development of new options of her use. In the period of a maturity of branch it is harder and harder to give to production new properties or to find the new fields of its application. Crucial is a timely support of commitment of the consumer to a trademark. However in case the product satisfying a certain specific need of specific consumers is possible to create the companies, such product can be very successful in the concrete markets, and the buyer will highly appreciate the provided consumer value.
- 8. Increase in a role of distributor network, her power increases. Strategic importance is gained by the process directed to service of the end user. Distribution is the final stage of logistics and plays a crucial role as high-quality service and high level of service of consumers is the catalyst of repeated purchases.
The listed symptoms and implications which arise in branches at a maturity are higher, lead to the fact that methods and instruments of production and marketing, and also strategic and tactical management undergo essential changes. Former methods and receptions don't provide achievement of goals any more. Essential differences in external and internal environment of the company predetermine need of development of new tools and approaches to strategic management.
Besides, the maturity of branch which is followed by a competition exacerbation bares competitive delicacies of the companies.
The choice of the basic development strategy (according to M. Porter) becomes an important question at this stage: to be in the lead on the level of expenses (the strategy of low expenses) or to frame (to strengthen, develop) differentiation (the strategy of differentiation); to refer efforts of the company to coverage of all market or to provide focusing on one or several segments (the strategy of focusing). However in many cases differentiation in mature branches where goods are more standardized, can be complicated, and benefit due to introduction of grocery or production (technological) innovations can be short-term.
Key question for the company at this stage - to take the place in the formed new structure of the market. Adaptation of strategic assets, competences and competitive opportunities of the company to the amplifying competitive pressure and new conditions of managing is for this purpose necessary.
According to M. Porter [70,71 ], at a stage of transition to a condition of a maturity of branch of the company can make the following strategic mistakes:
- - the wrong perception by the company of a condition of development of branch and a stage of her life cycle, tendencies of the market and the place on him, key factors of success in branch;
- - a stop on a half of a way at which investments and efforts of last periods don't yield estimated results;
- - insufficiently bystry or insufficiently considerable reduction of expenses, weak control of their level, delay with reduction of prices in response to actions from competitors, unreasonable actions in response to the price competition and changes in business practice;
- - unjustified investment into various activities in the conditions of uncertainty of rather further growth of a share of the market in a condition of a maturity of branch;
- - creation of excess production capacities in the conditions of delay of growth of branch, bureaucratization of management personnel;
- - rather easy refusal of a market share for the sake of short-term benefit, concentration on obtaining short-term benefits instead of creation of a long-term competitive position and steady competitive advantages;
- - revaluation of the importance of new innovative production instead of improvement of quality of the existing goods and the accompanying services, intensifications of efforts on their sale, strengthenings of competitive advantages in services industry and the relations with consumers;
- - underestimation of strategy of improvement of goods for satisfaction of specific consumer inquiries of specific buyers;
- - excessive focusing on improvement of quality of production in response to aggressive pricing and actions of competitors for decrease in expenses;
- - excessive publicity expenses and advance of production to overcome decline in sales;
- - neglect need of maintenance of a share of the market for new conditions of managing.
According to many experts (including M. Porter), the most serious strategic mistake which the company in mature branch can make is to try to reach advantage at the same time on expenses, due to differentiation and on the basis of the focused strategy. In such situation of the company can't achieve goals and create the necessary set of competitive advantages as their strategy is considered indistinct and steady image in the opinion of buyers doesn't exist.
However there are also supporters of strategic compromises when achievement of competitive advantage at the same time on expenses, due to differentiation and on the basis of the focused strategy is possible. Such strategy demands application of multidirectional approaches to activity of the company. Perhaps, in some branches at different stages of a production cycle application of elements of different strategy of the competition in the conditions of a maturity of branch is expedient.
M. Porter offers several main strategic aspirations which are capable to provide success to the companies functioning in mature branches:
- - reduction of number of commodity groups and models of goods;
- - optimization (reorganization) of a branch chain of value;
- - universal decrease in expenses;
- - increase in sales volume;
- - acquisition of the rival companies
- - entry into the international markets;
- - improvement or creation of new competitive opportunities.
Competitive strategy which are applied by the companies in mature branches have to be directed to the solution of many again arisen strategic tasks among which the following is the most important [70,71,81]:
1. Rationalization of the range of goods and number of commodity groups; cessation of production of low profitable and unprofitable goods; concentration of efforts on production and sale of more profitable goods at this conjuncture
- 2. Constant analysis and optimization of a chain of value creation of production, universal decrease in expenses, rigid control over production expenses
- 3. Expansion of sales markets, search of new buyers or new use of goods (at an opportunity)
- 4. Creation of the developed distributor network for approach to end users, accumulation of efforts on advance of goods
- 5. The careful choice of the target markets, development of programs for increase in loyalty of consumers and to strengthening of ties with them
- 6. Increase in sales volumes of production to already available consumers or attraction new by means of modification of goods (change of various properties - quality, technical characteristics, style, packing, etc.), offers of the accompanying goods, additional services, new options of use of goods
- 7. Correctly reasonable positioning or repositioning of a product (assumes a possibility of attraction of new segments of the market that it can demand modification of various brands)
- 8. Entry into the international market, search of new sales markets, orientation to the growing sales markets on regions
- 9. Application of strategy of integration, active policy in the field of cooperation, merges and absorption, acquisition of new assets or assets of other companies, active participation in work of professional associations
- 10. Audit of organizational structures, change of structure of management and degree of independence of divisions
- 11. Change and adaptation of methods and tools of researches, productions, management and marketing, distribution and sale to new branch and market conditions.
In the conditions of a maturity of branch a special role is played by actions for so- called revival of the market in the field of marketing (use of new forms and sales channels, new types of advertizing, new packages of services for the consumer, etc.) or new price policy, and also in the field of production management (change of approaches to production, introduction of new technologies or other innovations, etc.) and innovative development.
Actions of the government which can change considerably rules of the game in the market can play a special role, taking certain actions in the field of subsidizing, supports of the enterprises, tax policy, policy in the field of import and export, etc.
Life cycle of branch can also change as a result of changes in supply and demand of goods in the market, development of the competition and essential change of a branch environment, and also as a result of active scientific and technical progress, emergence and diffusion of new knowledge and technologies (new production technologies, new goods substitutes, new requirements, etc.).
So, the mining and chemical branch, as well as the majority mining and processing industries, endures a maturity now. As has shown the carried-out analysis, the branch is characterized by excess of rates of a gain of production capacities over growth rates of the market that in the short term will lead to overproduction of production on all segments of branch (nitric, phosphoric and potash). As it has been noted in the previous heads, the main tendency of development of the market in the short-term and medium term - excess of the offer over demand.
Strengthening of the competition at a maturity in mining and chemical branch more depends on difficulties with expansion of list of consumers of mineral fertilizers as increase in their number for each company from the developed contingent in the market demands the offer him higher, in comparison with competitors, economic benefits in the course of purchase of goods. For this reason at a maturity volumes of profits - the companies can decrease if the company has no pronounced competitive advantages over the existing competitors.
In such branch and market conditions formation of rationally functioning mechanism of creation and maintenance of necessary competitive advantages which will be urgent and effective in such developed conditions is necessary. At the same time if, for example, at growth stage the mining and chemical companies have such competitive advantages which in the conditions of service of considerable and escalating number of consumers of mineral fertilizers allow to lower significantly expenses at the expense of the increasing volumes of product sales and to increase economic results of the mining and chemical companies, then in branch at a maturity the reverse situation is observed.
Development of the mining and chemical companies at a maturity of branch is also connected with considerable risks which are generated, first of all, by instability of market conditions in the conditions of growth of the offer. Therefore emergence of any negative impacts macro - and microenvironments can significantly influence production economic activity of the separate companies and mining and chemical branch in general.
At this stage of life cycle of branch all package of measures of organizational and administrative, technological, marketing and innovative character which have to be undertaken within the developed and realized strategies at various levels of management focusing the mining and chemical companies on strengthening of economic relations with the most important end users of production in the key markets and expansion of a segment of consumers (at an opportunity), rationalization of logistic and marketing network, on optimization of structure of business on profitability, development of the new domestic and international markets, improvement of quality of production and release of new hi-tech goods and rendering the accompanying services is necessary for the mining and chemical companies.
In the figure 4.3 the conceptual scheme of strategic development mining and chemical the companies in the conditions of mature mining and chemical branch taking into account branch and market features of functioning is submitted.
At the same time the fact that to become priority for the company the so-called defensive strategy of business for deduction of a market share is important. During the predicted essential excess of the offer over demand in the conditions of a maturity of branch search of new strategic decisions is necessary for the domestic mining and chemical companies for realization of defensive strategy of business - the strategy of deduction of the existing market share.
Saving the status of the producer with low expenses (generally due to resource competitive advantages) with simultaneous strengthening of positions in the priority key markets, strengthening of a kliyentooriyentirovannostiya of mutually beneficial relations with consumers (due to search and formation of new competitive advantages) has to become a strategic objective of the domestic mining and chemical companies.
Need of formation of new competitive advantages are caused by the main objectives which face mining and chemical holdings in the conditions of a maturity of branch.
Fig. 4.3 the Conceptual scheme of strategic development mining and chemical the companies in the conditions of mature