What strategy should be adopted in the face of a declining market?

Denis Dauchy , Professor

In this article, originally published in HBR France, Denis Dauchy, Professor at EDHEC, asks: faced with waves of technological innovation, regulatory shifts and new societal challenges, how can companies - which are increasingly faced with the predictable decline of established markets - (re)act?

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24 Oct 2024

Many sectors are undergoing, or will undergo, changes to their market or business model. The current examples of printing companies, plastic packaging manufacturers and language translation agencies are just a few examples of this configuration. In this article, we explore the strategic stance to be adopted by exhaust system manufacturers faced with the predictable decline in internal combustion engines.

Breaking out of the strategic wait-and-see attitude

The first step is to recognise the structural nature of a change. Avoiding desynchronisation between the decline of a market and strategic action is a recognised key challenge. A company's identity is forged by its historical presence in a particular business. Cultural attachment and collective routines build strong roots. In the face of predictions, the mental patterns of players, the existence of technological assets and know-how that is sometimes ancestral, are the seeds of strategic myopia and the first barriers to initiating moves at the right tempo.

The development of electric vehicles and regulatory restrictions point to a predictable decline in the exhaust pipe market. However, interpretations can vary widely depending on the type of vehicle and new engine, the political uncertainties surrounding regulatory changes, geographical areas, the existence of a large market for replacement parts, etc. There are many factors that enable the players concerned to procrastinate on a change that would be too radical for their business model.

However, the biggest strategic risk is the delay in taking up an option. If we are to control the destiny and value of our company, we must avoid adopting a defensive posture, and take into account the time required for any major move. Below we outline and illustrate three possible strategic approaches.

Being an active resister

Considering the ‘last survivor’ position is a first option. The decline of a market never adopts a certain curve, nor is it the same as its extinction. Faced with a situation of possible structural decline, some companies explicitly favour a priority logic of competitive preservation. This approach is all the more attractive because the voluntary withdrawal of other players from the business can lead to competitive concentration and improved pricing power vis-à-vis customers. Acting as a consolidator can be a winning economic strategy, including through external growth, structural cost reduction, etc.