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2.6. Risks in high growth markets. There are a number of conditions that need to be considered when evaluating whether a high growth market is really as attractive as it might seem. These are (according to T. Proctor analysis): Whether the number of competitors serving the market is really greater than can be sustained by the growth opportunity. The following conditions are found in markets in which a surplus of competitors is likely to be attracted and a subsequent shakeout is likely: the market and its growth rate are highly visible to all and therefore unlikely to be overlooked by any firms which may have an interest very high initial and forecast growth very few threats to the sustainability of the growth rate few initial barriers to entry, products make use of an exiting technology rather than a risky or protected technology, some of the potential entrants have low visibility and their intentions are unknown or uncertain.The shakeout itself often occurs over a relatively short period of time.The trigger is likely to be a combination of: an unexpected slowing of market growth rate, either because the market is close to saturation or a recession has intervened. aggressive late entrants buying their way into the market by cutting prices, the market leader attempting to stem the erosion of its market position with aggressive product and price retaliation, the key success factors in the market changing as a result of technological development, perhaps shifting the value-added structure. Whether a competitor may enter with a superior product or low cost advantage (scale economies). The late entry of low-cost products from the Far East has occurred in many industries (including radios, TVs, VCRs etc.) Whether the key success factors in the market are likely to change in a way that is incompatible with the evaluating firm’s capabilities.Many product markets have experienced a shift over time from a focus on product technology to process technology. A firm that might be capable of achieving product-technology based advantages may not have the resources or skills required to develop the process-technology based advantage that the evolving market requires. Whether the technology in the market might change. Whether resources are inadequate to maintain a high growth rate. Financing requirements are frequently increased by higher than expected product development and market entry costs, and by price erosion caused by aggressive or desperate competitors. The organizational pressures and problems created by growth can be even more difficult to predict and deal with than financial strains. Many firms have failed to survive the rapid growth phase because they were unable to obtain and train people to handle the expanded business or to adjust their systems and structures. Whether distribution may be inadequate or not available. Most distribution channels can support only a small number of brands. For example, most distributors are unwilling to carry more than four or five brands of a household appliance because of the limited amount of shelf- space available. Given the limit on the number of brands that can be distributed, some brands may find it impossible to gain distribution at all or at the very least the distribution level will be unacceptably low. As market growth rate begins to slow, distributor power is increased. Their willingness to use this power to extract price and promotion concessions from manufacturers or to drop suppliers is often augmented by their own problems in maintaining margins in the face of extreme competition for their own customers. Many of the same factors that draw in an overabundance of manufacturers also contributes to over-crowding in subsequent stages of a distribution channel. The eventual shakeout at this level can have equally serious repercussions for suppliers.

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