Disruptive Industry Forces: What are they and how to eat them.
In the everchanging business world, corporate strategies inevitably fall to sudden turbulence in the competitive market environment. The often answer to market volatility are mergers and acquisitions.
New opportunities emerge because of continuous development and progress which in turn facilitate growth and profits. New products or services, new logistical structures and formulas, new technologies and reciprocal markets emerge as a result of industrial disruptions – the turbulence. It is important to be aware of these disruptions and take preliminary steps to adapt to them. One of the most common strategies of adjustment to industrial disruptions is mergers and acquisitions.
Technological and industrial growth is, therefore, a process of creative destruction, where on one side of the coin we have progress and efficiency, and on the other, closing factories, layoffs, lawsuits, etcetera. To be able to anticipate and equip your business for industrial disruptions of such magnitude, we must first identify the different types of such turbulences:
Deregulation – this is an act of reduction or elimination of governmental power and influence in a specific industry, usually implemented in efforts of increasing industry competitiveness.
Market liberalization – one of the numerous key responsibilities of the European Union (EU). Market liberalization is the process of government deregulation and openness of the market towards new private companies. For example, the energy sectors such as gas, electricity, and oil experienced market liberalization via a series of laws introduced since 1996.
Geopolitical changes – for example, the fall of the Iron Curtain or China’s entry into the World Trade Organization (WTO) in 2001 which changed the worldwide economic structure and international trade.
Demographic changes – a contemporary example of demographic changes are the mass immigration of population to nearby countries, or consequences of periods of extreme population growths, such as the ‘baby boom era’ of the 60’s.
Technological innovations – there can be grouped into four main categories:
1. Incremental Innovation – the most common form of innovation which adds value to the existing technology in a form of new features, design, software, etc.
2. Disruptive Innovation – involves implementing a new technology or process directly in your market
3. Architectural innovation – implies reallocation and reapplication of existing technology, process, or knowledge in a different market setting.
4. Radical Innovation – is what everyone thinks when they say ‘innovation’. Radical innovation gives birth to new industries and creating groundbreaking technology that may even destroy existing industries.
Innovation in financial markets – the implementation of new financial instruments such as ‘junk bonds’ that provide more opportunities to access capital. During the 80’s such innovation caused an increase in the number of acquisitions with a high percentage of debt.
Globalization – what is going on right now! A global integration of international trade, investment, information technologies, and cultures. Globalization expands the competitive arena, breaching together new clients, competitors, and suppliers for those that are equipped to enter the international arena.
Changes in consumer behavior – a vital everchanging factor because we always want something new! It is vitally important to keep track of the changes in needs or demand of consumers based on the specific industry. This is because consumer behavior is a delicate factor that is industry specific.
Changes in capital markets – inflation or deflation of monetary currencies consequently affect the cost of debt which can either facilitate or hinder acquisitions.
Now that we are mindful about the possible changes that continuously occur across an array of industries, let’s examine why mergers and acquisitions are so relevant in this context. History has shown us plenty of evidence to conclude that mergers and acquisitions represent one of the most cost-efficient ways of adjusting to market changes when done at the right time in the right place. It is also known to facilitate the implementation of vital adjustments that will be able to reduce excess costs and increase value.
When examining a possible transaction between two corporate entities, it is essentially important to thoroughly examine the details of the picture – competitive standing of the buyer and the seller in depth – and the overall canvas – analyzing how the economies of scale and profits will be realized and generated in case the deal is sealed.
Here at ONEtoONE, we consider every aspect and intricacy of concurrent market trends and industry environment during the valuation process. If you want to learn more about what we do and our methodology, please visit our corporate website or contact us via this form. In case you wish to learn more about the ways you can maximize the value of your company today, read our free e-book! It’s free.
Come back for more reads next week!
Liberalisation of markets in the EU. (2018). Retrieved from https://www.nibusinessinfo.co.uk/content/liberalisation-markets-eu
Lopez, J. (2018). Types of Innovation | Constant Contact Tech Blog. Retrieved from https://techblog.constantcontact.com/software-development/types-of-innovation/