Submarket Convergence Favors Incumbents, While Specialization Creates Entrant Opportunities
Category: Innovation & Markets · Effect: Strong effect · Year: 2017
When technological and customer competences required for different market segments become more similar, established companies (incumbents) are better positioned to maintain their market share, whereas new entrants struggle to gain a foothold.
Design Takeaway
When designing for a market where competences are converging, focus on leveraging existing strengths and incremental innovation. If competences are diverging, there may be opportunities for disruptive innovation by specializing in a niche.
Why It Matters
This dynamic highlights how the degree of overlap in required skills and customer understanding across different product areas within an industry significantly influences competitive landscapes. Designers and strategists must consider this convergence when developing new products or entering existing markets, as it dictates the barriers to entry and the strategic options available to both new and established players.
Key Finding
When the skills and customer knowledge needed for different product areas become more alike, it's harder for new companies to break into the market. However, if there's a difference in either the technical skills or the customer understanding required, new companies have a better chance to establish themselves.
Key Findings
- Convergence in both technological and customer competences decreases entrants' survival chances.
- A lack of convergence in either technological or customer competences provides entrants with opportunities to enter and potentially disrupt incumbents.
Research Evidence
Aim: To investigate how the convergence of technological and customer competences across submarkets impacts the survival and success rates of industry incumbents versus new entrants.
Method: Empirical research
Procedure: The study analyzed data from the global semiconductor manufacturing industry to assess the relationship between the convergence of technological and customer competences and the survival of new entrants compared to established firms.
Context: Global semiconductor manufacturing industry
Design Principle
Market entry and product development success is influenced by the degree of shared competences across related submarkets.
How to Apply
Before launching a new product or service, analyze the technological and customer competences required for existing offerings in your target market. Assess the degree of overlap to understand potential barriers for new entrants and strategic positioning for incumbents.
Limitations
The study is specific to the semiconductor industry, and findings may not directly translate to all industries. The definition and measurement of 'competence convergence' could be subject to interpretation.
Student Guide (IB Design Technology)
Simple Explanation: Imagine a market where making different types of products requires very similar skills and knowledge about customers. This makes it hard for new companies to start because they have to be good at everything at once. But if making different products requires different skills or customer knowledge, new companies can focus on one area and have a better chance to succeed.
Why This Matters: Understanding market dynamics helps you make strategic design decisions. Knowing when to specialize or generalize can lead to more successful product launches and business strategies.
Critical Thinking: To what extent can incumbents actively manage competence convergence or divergence to maintain or gain competitive advantage?
IA-Ready Paragraph: Analysis of industry evolution suggests that the convergence of technological and customer competences across submarkets significantly impacts competitive dynamics. High convergence favors incumbents by creating barriers to entry for new firms, while divergence in competences can provide opportunities for entrants to specialize and disrupt established players. This insight is crucial for strategic product development and market entry planning.
Project Tips
- When researching a market, look for how similar or different the skills and customer needs are for various product types.
- Consider how your design choices might make it easier or harder for new competitors to enter the market.
How to Use in IA
- Reference this study when discussing market analysis, competitive strategy, or the impact of technological evolution on design choices in your design project.
Examiner Tips
- Demonstrate an understanding of how industry structure, particularly competence convergence, influences innovation and market entry.
Independent Variable: ["Convergence of technological competences","Convergence of customer competences"]
Dependent Variable: ["Entrant survival chances","Incumbent success"]
Controlled Variables: ["Industry (semiconductor manufacturing)","Time period of analysis"]
Strengths
- Empirical evidence from a relevant industry.
- Addresses a key aspect of industry evolution: incumbent-entrant dynamics.
Critical Questions
- How can a designer influence or leverage competence convergence or divergence through their product design?
- What are the ethical implications of incumbents using competence convergence to block new market entrants?
Extended Essay Application
- Investigate the impact of evolving technological standards (a form of competence convergence) on the design and market success of products in a specific sector, such as renewable energy or digital health.
Source
A Competence-Based View of Industry Evolution: The Impact of Submarket Convergence on Incumbent−Entrant Dynamics · Academy of Management Journal · 2017 · 10.5465/amj.2015.1080