Industry life cycle

Discus the different stages in the industry life cycle.

Concept of Industry: We may define an industry “as a group of firms producing reasonably similar products which serve the same needs of a common set of buyers”. An industry is generally described as a homogenous group of companies and traditionally classified on the basis of products.

When an investor ultimately invests his money in the securities of one or more specific companies than he took assume an industry analysis to study the fundamental factors affecting the performance of different industries. Industry analysis refers to an evaluation of the relative strengths and weakness of particular industries.

Marketing experts believes that each product has a life cycle.  They have identified four stages in the life of a product, namely-

• Introduction stage
• Growth stage
• Maturity stage
• Decline stage

In the other way, according to Julius Grodinsky industry life cycle theory-the life of an industry can be segregated into the-

• Pioneering Stage
• Expansion Stage
• Stagnation Stage
• Decay Stage

Introduction stage/ Pioneering Stage: This is the first stage in the industrial life cycle of a new industry where the technology as well as the product are relatively new and have not reached a state of perfection. The pioneering stage is characterized by rapid growth in demand for the output of industry. As a result, there is a great opportunity for profit & highly risk. It’s also called sunrises industries. For example, ‘a leasing industry’ Computer Software & information technology etc.

Growth stage /Expansion Stage: This is second stage of expansion or growth and survived the pioneering stage. The stage of an industry are quite attractive for investment purposes. Investors cab get high returns at low  risk because demand exceeds supply in the this stage. Companies will earn increasing amounts of profits and pay attractive dividends.

Maturity stage/Stagnation Stage: This is the third stage in the industry life cycle. In this stage, the growth of the industry stabilizes. The ability of the industry to grow appears to have been lost. sales may be increasing but at a slower rate than that experienced by competitive industries or by the overall economy.  For example, Black and white television industry in India. 

Decline stage/ Decay Stage: From the stagnation sage the industry passes to the decay stage. This occurs when the products of the industry are no longer in demand. New products and new technologies have come to the market. Customers have change their habits, style and liking. As a result, the industry becomes obsolete and gradually ceases to exist. Thus, changes in social habits, changes in technology and declining demand are the causes of decay of an industry.

The industry life cycle approach has important implications for the investor. It gives an insight into the apparent of investment in given industry a t a given time. In fact, each development stage is unique and exhibits different characteristic.