Sequenced Entry into new businesses

Any decision to enter an industry must include a target strategic group. However, the discussion in Chapter 7 combined with the analysis earlier in this chapter suggests that a firm can adopt a se-quential strategy of entry involving initial entry into one group and subsequent mobility from group to group. For example, Procter and Gamble acquired the Charmin Paper Company, which had high- quality toilet tissue and some production facilities, but little or no brand identification and only regional distribution. Starting from a base in this strategic group, Procter and Gamble invested substantial resources in creating brand identification, achieving national distri-bution, and improving the product and production facilities. Thus, Charmin was shifted into a new strategic group.

Such a strategy of sequential entry may lower the total cost of overcoming mobility barriers into the strategic group that is the ulti-mate target, and may lower the risks. Costs can be lowered by ac-cumulating knowledge and brand indentification in the industry through entry into the initial group, which is then used at no cost for mobility into the ultimate target group. Managerial talent can be de-veloped in a more measured way in this fashion. Also the reaction of existing firms to entry might be tempered by such a sequenced strategy.

A sequenced strategy often lowers the risks of entry because the firm can segment the risk. If it fails in its initial entry, the firm is spared the cost of going further; it would have to put all its chips on the table if it tried to enter the ultimate target group right away. Se-quenced entry also allows the firm to accumulate capital for subse-quent shifts in position, for which it might have to pay a stiff price if all were needed at once. In addition, a firm can choose to take its first step into a strategic group in which overcoming mobility bar-riers requires relatively reversible investments (plant capacity that is salable). For example, a firm‘s initial entry might be into production for a private label. Only if it is successful at this step will the firm then attempt entry into a strategic group where heavy investments in advertising, R & D, or other unsalvageable areas are required to overcome mobility barriers.

The analysis of sequenced entry can be turned around to derive implications for existing firms in the industry. If there are particular-ly safe sequenced entry strategies, then it clearly pays to direct in-vestments in mobility barriers to close them off.

Source: Porter Michael E. (1998), Competitive Strategy_ Techniques for Analyzing Industries and Competitors, Free Press; Illustrated edition.

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