HOW MARKET FACTORS CAN AFFECT BUSINESS GROWTH
The degree of growth and the rate at which a new venture grows is dependent on both the market and the management strategy. Market factors affect a firm’s ability to grow.
- The Size, Characteristics, and the Buying Power of the Target Market
If the niche market that the company is entering is by nature small and relatively stable in terms of growth, it will, of course, be more difficult to achieve the spectacular growth and size of the most rapidly growing companies. On the other hand, if the product or service can expand to a global market, growth and size are more likely to be attained.
- The Nature of the Competition
Entering a market dominated by large companies is not in and of itself an automatic deterrent to growth. A small, well-organized companies often able to produce its product or service at a very competitive price while maintaining high-quality standards, because it does not have the enormous overhead and management salaries of the larger companies. Moreover, if an industry is an old, established one, a firm entering with an innovative product in a niche market in that industry can experience rapid rates of growth.
- The Degree of Product Innovation in the Market
In some industries, such s the computer industry, innovation is a given, so merely offering an innovative product is not in itself enough. In highly innovative industries, the key to rapid growth is the ability to design and produce a product more quickly than competitors. By contrast, in an industry that is stable and offer products and services that could be considered commodities, entering with an innovative product or process will provide a significant competitive advantage.
- The Status of Intellectual Property (IP) Rights
Intellectual Property rights, like patents, copyrights, trademarks, and trade secrets, offer a competitive advantage to a new venture because they provide a grace period in which to introduce the product or service before anyone can copy it. However, relying on propriety rights alone is not wise. It is important to have a comprehensive marketing plan that enables the new business to secure a market before someone attempts to reproduce the product and compete with it.
True, an owner of intellectual property has the right to take someone who infringes on those proprietary rights to court, but the typical small company can ill-afford this time-consuming and costly process when it needs all the excess capital for growth.
- The Volatility of the Industry
Some industries are by their very nature volatile; that is, it is difficult to predict what will happen for any length of time and with any degree of accuracy. The computer industry in the early 1980s was such an industry, but has become more predictable as leading players have emerged.
The nanotechnology industry, however, is very volatile.
Consequently, there are opportunities for extraordinary growth in new ventures, and at the same time, a higher risk of failure. A new entry into such an industry needs to maintain a constant awareness of potential government regulations, directions that the industry is taking, and emerging competition.
- Barriers to Entry
Some industries, simply by virtue of their size and maturity, are difficult for a new venture to enter and difficult to penetrate with sufficient market share to make a profit. Other industries prohibit new entries because the cost of participating (plant and equipment, fees, and/or compliance with regulations) is so high. Yet, in the right industry, a new venture can erect barriers of its own to slow down the entry of competing companies. Patent rights on products, designs, or processes, for example, can effectively erect a temporary barrier to allow the new venture a window of opportunity to gain market share.
