A firm in a declining industry that adopts a harvest strategy assumes that:
Answer(s): A
A harvest strategy is in effect a controlled, gradual liquidation. It maximizes cash flow by minimizing new investment, R&D, advertising service, maintenance, etc., and by exploiting the firm's remaining strengths (e.g., goodwill) to increase prices or maintain sales volume. To besuccessful, the strategy assumes that the firm has certain strengths and intense competition is absent. The strengths permit the firm to maintain sales for a time in the face of price increases, reduced advertising, etc. Absence of intense competition means that other firms will be less likely to seize market share or lower prices. Moreover, a firm must be capable of cost reductions that do not cause immediate failure.
In a declining industry with a favorable structure, a firm may have the ability to recover additional investment or to earn above-average returns in the remaining pockets of demand. Such a firm is most likely to follow a:
Answer(s): D
A leadership strategy is pursued by a firm that believes it can achieve market share gains to become the dominant firm. An assumption is that additional investment can be recovered. A second assumption is that success will put the firm in a better position to hold its ground or subsequently to follow a harvest strategy. A niche strategy seeks a market segment (pocket of demand) with stable or slowly decreasing demand with the potential for above-average returns. Some of the moves undertaken when following a leadership strategy may be appropriate. The firm may eventually change to a harvest or divest strategy.
Which factor signals a favorable structure in the remaining pockets of demand in a declining industry?
Answer(s): B
The structure of the remaining pockets of demand determines whether the surviving firms can be profitable. Prospects are favorable if the pockets include price-insensitive buyers of highly differentiated products. Prospects also are favorable if buyers have little bargaining power because of high switching costs or other factors, such as the need to replace the equipment of the suppliers that have withdrawn from the industry. Furthermore, firms operating in remaining pockets may thrive if mobility barriers are high (preventing firms in other segments from competing) and if substitute products or strong suppliers are not threats. High switching costs mean that buyers are less likely to purchase substitutes. Thus, future demand is more certain, and the structure is more favorable.
A company experiences a decrease in unit sales over the long run. It is in a(n):
A declining industry is not simply at a low point in the business cycle but has sustained a permanent decrease in unit sales over the long run. Michael E. Porter's view is that this phase of the industry life cycle does not correspond exactly to the decline stage in the product life cycle. Moreover, he argues that the nature of the competition and the range of strategic choices in the decline phase are diverse and vary widely from industry to industry. The result is that some industries may be able to negotiate decline without intense rivalry, long-term overcapacity, and ruinous losses.
Post your Comments and Discuss IIA IIA-CIA-PART4 exam with other Community members:
K.Tho Commented on October 05, 2023 Very helpful UNITED STATES
Our website is free, but we have to fight against bots and content theft. We're sorry for the inconvenience caused by these security measures. You can access the rest of the IIA-CIA-PART4 content, but please register or login to continue.