Market exit and industry consolidation
Exiting unprofitable market segments often remains a last option for firms — or the exit of one or more competitors may be seen as the only way for an unprofitable industry to recover. When evaluating the option of a market exit — be it for a competitor or one’s own company — a careful analysis of all other options is essential. Are there any options that would improve the market situation in order to make it more attractive to stay in the market than to exit? How could competitors or other stakeholders be encouraged to pursue certain strategies that would enable us to stay in the market? By attempting to push competitors out of the market, do we destroy more value than we might gain later? Furthermore, exiting market segments may have spillover effects into other segments. Thus, the decision to leave one segment must be evaluated in the light of possible reactions and effects on other segments.
Our approach pays attention to all of these relations and helps our clients to carefully evaluate their options.
Selected cases: Market exit and industry consolidation
Market consolidation strategy
In a business characterized by significant overcapacities and low price levels, our client was confronted with excessive and seemingly irrationally aggressive competition by two Asian competitors. The client and a second western competitor were victims of long-lasting aggressive behavior stemming from personal feelings between the Chinese companies. Together, the team developed a plan to resolve the issue using M&A, avoiding maximal confrontation or, as an ultima ratio, leaving the market.
Strengthen own market position despite facing multiple disruptives
In a highly competitive chemical market, our client was an established global supplier who faced multiple potential disruptive elements: potentially upcoming political regulations in the world’s biggest market segment; the possible entry of two new suppliers; rumors about shut-downs of some unprofitable smaller suppliers; and technological innovations that would create various new product applications and change customer demands drastically. With our analyses, we helped our client to identify the most impactful of those disruptives, to understand their interplays, and to develop a suitable action plan how deal with them best.
Market exit/focus strategy
Our client’s market suffered from overcapacities and low margins, and market exit had to be evaluated against the prerequisites for market consolidation by a competitor’s exit resp. factory close-down. Our team found that it could not count on a competitor to leave the market but could use the swing capacity in this regionally highly specific market to escape the price race towards the bottom to a certain extent.