Chapter 9. Competitive Strategy in Fragmented Industries Fragmented market is a market structured by large number of medium to small-sized companies.

Mostly, a market is fragmented because of economic reasons. There are : y Low Overall Entry Barriers, thus it is easy for entrants to come. y Absence of Economies of Scale or Experience Curve; attracts new comers to join y High Transportation Cost and High Inventory cost y No Advantages of Size in dealing with buyes or suppliers. y Diseconomies of Scale in some Important Aspect. Highly diverse product line requires production flexibility that usually most of small companies are better than the large one. In a heavy creative content, such as advertising and interior design, it is very hard to maintain the productivity of personnel in a large company. Small companies are more advantageous in the market that requires close local control, personal service, local image and local contacts. High product differentiations based on image and market needs diversity make difficulty for large firms to operate effectively and efficiently. The exit barrier holds back companies for leaving the market. Local regulation governs economy in particular areas that demands market fragmentation. Government restriction on concentration does not allow any consolidation such as electric power, television and radio station. Newness, industries can be fragmented because it new and no firm have yet developed the skills. Overcoming Fragmentation Overcoming can be a very significant strategic opportunity. The payoff to consolidating a fragmented industry can be high because the cost of entry into it are by definition low, and there tend to be small and relatively weak competitors who offer little threat of retaliation. Consolidation is commonly used to overcome market fragmentation. The first approach to consolidate is by creating economies of scale or learning curve. Companies may also standardize diverse market needs. Sometimes, fragmentation are caused by several factors, thus firms should neutralize or split off aspects most responsible for fragmentation. Critical mass is made by acquisitions. Altering the causes of fragmentation is done by recognizing industry trends early. Strategic in Fragemented market The strategic for companies, in order to make a decision in a fragmented market is how company position in the mareket. In order to implement competitive strategy-low cost, differentiation or focusa company may carry out tight decentralization management, :Formula facilities, increase in value added, product type or product segment specialization, specialization by customer type or order type, focused geographic area, bare bones/no frills and backward integration. But the company must careful because the fragmented industry provides number of strategic traps, such as dominant market share, lack of strategic discipline, over centralization, assumption that competitors have the same overhead and objectives, and overreaction to new products. Crafting business strategy is very crucial for companies existence. There are five questions in formulating strategy at fragmented market. Those questions are listed below: y What are the structure of the industry and the position of competitors? y Why is the industry fragmented? y Can fragmentation be overcome? How? y Is overcoming fragmentation profitable? Where the firm should be positioned to do so? y If fragmentation is inevitable, what is the best alternative for coping with it?