Strategic errors are very often linked to a lack of understanding of markets and forces that develops naturally in those markets.

1. Are you sure you understand correctly the forces
developing in your markets?
Strategic errors are very often linked to a lack of
understanding of markets and forces that develops
naturally in those markets.

2. Market forces naturally change over time due to:
•
Demography:
• The relative weight of populations
• The structure of age of populations
The countries with dynamic demography are the emerging or under developed ones. Their
population accounts for 85% of the world population. The countries with “Malthusian”
demography are in the developed countries and their population represents only a 15% weigh.
•
Economic cycles:
• The phase of investment gives growth
• The phase of renewal gives decrease
Just like product or technology life curve, an economy passes through an investment phase where
volumes grow regularly alongside their penetration and their development. Then the renewal
phase comes where volumes tend to decrease, the needs are correctly covered and market is only
natural renewal.
•
International trade liberalization agreements and more generally the evolution of population’s
information and trainings thanks in particular to internet and other modes of communications.
•
Ores localization, in particular energetic ones.
Developed countries have eaten into their raw material reserves at different levels and are
generally in a situation of dependence upon emerging and underdeveloped countries. Certain
important emerging countries share this situation in particular China and India. The progressive
scarcity of these essential resources drives a geopolitical slip and dependence. It modifies the
power balances and could prove to be explosive in more or less long term.
16 dec. 2013
2

3. The developed countries are characterized by a demography which is not dynamic (even
decreasing), a population getting older and older, a majority and increasing share of the economy in
phase of renewal, an advanced opening and dependence towards international trade.
The under developed or emerging countries on the contrary are characterized by a dynamic
demography, a large majority share of the economy in phase of investment and a variable opening
to the international trade.
Resulting is a natural and generalized slip:
• from developed countries offering a consumption reach of a few tens to a few hundreds of
million people (benefiting from a high level of R & D and standard of living and higher
equipment rate supporting creation and development of new products),
• towards emerging countries opening a consumption reach of several hundreds of million to one
or two billion people avid of consumption and only partially equipped (and with increasing
standard of living thanks to globalization),
• then towards under developed countries which add a few billion potential consumers notequipped (still their standard of living tends to increase more slowly).
This slip accelerates as an industry, a technology or a kind of product progress towards maturity.
It brings (makes necessary/inevitable) an accelerated prices decrease and thus a permanent
search for costs reduction.
16 dec. 2013
3

4. Let us take the example of a given product life cycle (theoretical) which would concern potentially a
one person out of three and with an average renewal rate every 3 years.
While populations access to this product and through the rate of equipment evolution, this product
market will evolve from 5 to 670 million units.
The quantity increase will follow a characteristic geographical evolution.
• At the beginning the developed countries will start to be equipped and will concentrate the market
volumes,
• Then gradually these countries will see their equipment rate progressing while new populations
start consuming the product,
• The developed countries will then pass in phase of renewal whereas the geographical extension
towards new populations continues in an accelerated way,
Finally the product will be very widely diffused and the market will reach a maximum in phase of pure
renewal.
Graph of the quantitative trends in the market.
16 dec. 2013
4

5. 16 dec. 2013
5

6. As a consequence of the market enlargement, prices will tend to erode taking into account the cumulated
volumes produced but also of the need to serve populations with lower standard of living. An average
decrease of 5% will make that a product initially sold 2500 € at the beginning of cycle will only be worth
€320 at the end of the cycle giving an evolution of the global market incomes as follows.
Graph of the evolution of the incomes.
16 dec. 2013
6

7. To these evolutions (localization of consumers, prices and quantities sold) will naturally
correspond an evolution of manufacturing costs and localization and thus a material change in the
competition.
The product creators will see gradually appearing new entrants starting from the zones hardly
covered i.e. starting from emerging or under developed countries. These new entrants will benefit
from competitive advantages related to the volume of their markets but also of lower labor costs or
lower raw materials costs without having to spend as much of R & D and marketing than the
“creators”.
The different actors will have the ability to develop more or less aggressive strategies but this will not
materially change the geographical slip.
Thus the market could see the creators developing then disappearing gradually against new entrants
from emerging and under developed countries as the first pattern hereafter. Else certain competitors
may at an early stage develop a globalization strategy with production delocalization enabling them
to control the competition development and in the long run to preserve an important position as in
the second pattern.
The different actors strategy will potentially use a whole panel of differentiation tactics (depend
on product types) such as product range renewal, increasing value added of product range, creation
of fashion effect and product personalization, associated services,… This will generally cause to
slow down the slip and to render the market more complex in order to limit its slip.
16 dec. 2013
7

8. Capital intensity was a important barrier but its effect tends to disappear against emerging countries with
strong trade surpluses (and who thus constitutes important capacity of investments) and/or having
strongly liberalized their economies (and thus attracting easily international capitals).
Qualification and education level is another one but which tends to reduce also at least with respect to
large emerging countries which developed their universities and their R & D capabilities.
Moreover, these two barriers do not have much importance in a certain number of sectors where their
intensity is relatively low and where their impacts on the productivity is compensated by the low local
costs level.
Developed countries government action will tend to support the movement towards liberalization.
Indeed, developed countries need (on variable levels) the international trade:
• To avoid the recession, their economy being mainly in phase of renewal,
• For the access to ores and energy of which they are largely overdrawn,
• To be able to export their own products and thus cover more or less well their imports,
• To maintain (or decrease) the cost of living in their country and thus to develop their standard of
living.
Emerging countries government actions will also tend to liberalization but their motivation will be focus
towards their employment and standard of living increase. This action is and will continue to be “very
political” in the nondemocratic countries. The driving topic of their action remains (I) to facilitate the
export of their production towards the countries with stronger incomes (II) to facilitate the importation of
capital and technology to develop local industry (III) to protect local industry.
16 dec. 2013
8

9. Two patterns of evolution on a global standard market.
Revenues
2,5%
5,0%
6,5%
7,5%
10,0%
12,5%
13,5%
14,0%
15,0%
16,0%
16,5%
17,0%
17,0%
17,0%
17,0%
16,5%
16,5%
16,0%
16,0%
15,5%
15,5%
15,0%
15,0%
15,0%
15,0%
15,0%
14,5%
14,5%
14,5%
14,5%
14,5%
14,5%
14,5%
14,5%
14,5%
14,5%
1,0%
4,0%
7,0%
10,0%
12,0%
13,0%
14,0%
15,0%
15,5%
16,5%
16,5%
16,5%
16,5%
16,0%
16,0%
15,5%
15,5%
15,0%
15,0%
14,5%
14,5%
14,5%
14,5%
14,5%
14,0%
14,0%
14,0%
14,0%
14,0%
14,0%
14,0%
14,0%
14,0%
14,0%
2,5%
4,5%
7,0%
8,0%
11,0%
13,5%
16,5%
19,0%
23,0%
26,5%
29,5%
33,0%
36,0%
36,5%
36,5%
37,0%
37,0%
37,0%
37,0%
37,0%
37,5%
37,5%
37,5%
37,5%
37,5%
37,5%
37,5%
37,5%
37,5%
37,5%
2,5%
4,0%
7,0%
9,0%
11,0%
14,0%
17,5%
19,5%
23,0%
26,0%
29,5%
32,5% 33,0%
33,0%
33,5%
33,5%
33,5%
33,5%
33,5%
34,0%
34,0%
34,0%
34,0%
34,0%
34,0%
34,0%
34,0%
34,0%
34,0%
Creator Developed
countries
120,0%
Entrant 1
Revenue distribution
Entrant 2
Entrant 3
Entrant 4
Entrant 5
Emerging or underdevelopped countries
1 128
3 215
5 515
848
7 980
4 256
12 864
9 005
18 913
15 131
23 510
20 898
4 354
27 573
25 604
8 863
4 924
32 931
30 735
15 368
8 781
38 678
36 261
19 339
16 922
43 465
40 831
28 977
23 708
48 361
46 939
38 404
31 292
51 815
50 291
50 291
42 672
55 132
53 510
61 618
56 753
58 298
56 584
78 874
66 872
59 504
57 701
95 567
82 945
62 263
60 377
111 319
98 112
62 892
60 927
129 715
115 958
63 810
61 816
143 574
129 615
61 287
59 310
144 322
130 483
60 373
58 425
142 168
128 535
57 316
55 405
141 379
128 005
56 014
54 147
138 169
125 099
54 552
52 733
134 560
121 832
52 954
51 189
130 619
118 263
51 245
49 537
126 404
114 447
47 799
46 151
123 619
112 081
45 994
44 408
118 951
107 849
44 139
42 617
114 154
103 499
42 249
40 792
109 265
99 067
40 338
38 947
104 321
94 584
38 416
37 091
99 352
90 079
36 495
35 237
94 384
85 575
34 584
33 392
89 442
81 094
32 692
31 564
84 547
76 656
31 057
29 986
80 320
72 824
Creator
Entrant 1
Developed countries
12 500
26 323
1 385
40 613
3 384
54 658
6 430
67 876
10 606
79 796
14 363
90 049
16 723
98 349
18 913
104 489
20 898
108 324
21 665
109 768
21 954
108 783
21 757
105 370
21 074
99 567
19 913
91 439
18 288
81 076
16 215
68 586
13 717
54 094
10 819
37 735
7 547
19 654
3 931
0
-
160 000
Creator Developed
countries
140 000
Entrant 1
120 000
Entrant 2 Emerging or
underdevelopped
countries
Entrant 3
100,0%
Entrant 2 Emerging
or underdevelopped
countries
Entrant 3
80,0%
100 000
60,0%
Entrant 4
80 000
40,0%
Entrant 4
Entrant 5
60 000
20,0%
Entrant 5
40 000
20 000
225460
264938
304410
341633
373430
395402
377354
324304
263426
-20 000
196953
-
64303
-20,0%
128641
0,0%
12500
pattern.
12500
27708
45125
64303
84844
106395
128641
151306
174148
196953
219537
241740
263426
284477
304797
324304
342932
360629
377354
393077
398816
395402
389501
382104
373430
363677
353024
341633
329649
317203
304410
291374
278190
264938
251691
238513
225460
214187
Market share
Entrant 2
Entrant 3
Entrant 4
Entrant 5
Emerging or underdevelopped countries
12500
45125
84844
128641
174148
219537
263426
304797
342932
377354
398816
389501
373430
353024
329649
304410
278190
251691
225460
1st
Creator
Entrant 1
Developed countries
100,0%
95,0%
5,0%
90,0%
7,5%
85,0%
10,0%
80,0%
12,5%
75,0%
13,5%
70,0%
13,0%
65,0%
12,5%
60,0%
12,0%
55,0%
11,0%
50,0%
10,0%
45,0%
9,0%
40,0%
8,0%
35,0%
7,0%
30,0%
6,0%
25,0%
5,0%
20,0%
4,0%
15,0%
3,0%
10,0%
2,0%
5,0%
1,0%
0,0%
0,0%
16 dec. 2013
9

10. Revenues
12500
27708
45125
64303
84844
106395
128641
151306
174148
196953
219537
241740
263426
284477
304797
324304
342932
360629
377354
393077
398816
395402
389501
382104
373430
363677
353024
341633
329649
317203
304410
291374
278190
264938
251691
238513
225460
214187
Part de marché
Entrant 2
Entrant 3
Entrant 4
Entrant 5
Emerging or underdevelopped countries
2,5%
5,0%
7,5%
9,5%
11,5%
13,5%
14,5%
15,0%
15,5%
16,0%
16,5%
17,0%
17,5%
18,0%
18,5%
19,0%
19,5%
20,0%
21,0%
21,0%
21,0%
21,0%
21,0%
21,0%
21,0%
20,5%
20,0%
19,5%
19,0%
18,5%
18,0%
17,5%
17,0%
16,5%
16,0%
15,5%
2,5%
3,5%
5,0%
6,0%
7,5%
9,0%
10,5%
12,0%
13,5%
15,0%
16,5%
18,0%
19,5%
20,0%
20,5%
21,0%
21,5%
22,0%
22,5%
23,0%
23,5%
24,0%
24,5%
25,0%
25,5%
26,0%
26,5%
27,0%
27,5%
28,0%
1,5%
2,5%
4,0%
5,5%
7,0%
8,5%
10,0%
11,5%
13,0%
14,5%
16,0%
17,0% 17,0%
17,0%
17,0%
17,0%
17,0%
17,0%
17,5%
18,0%
18,5%
19,0%
19,5%
20,0%
20,5%
21,0%
21,5%
22,0%
22,5%
120,0%
Creator
Entrant 1
Developed countries
12 500
26 323
1 385
40 613
3 384
54 658
6 430
67 876
10 606
79 796
16 491
90 049
23 799
98 349
32 531
104 489
40 054
108 324
49 238
109 768
59 275
108 783
70 105
105 370
80 345
99 567
91 033
91 439
102 107
81 076
113 506
68 586
125 170
54 094
137 039
37 735
149 055
19 654
161 161
0
169 497
166 069
161 643
156 663
151 239
145 471
139 445
133 237
126 915
120 537
114 154
107 809
101 539
95 378
89 350
83 480
77 784
72 824
Distribution des revenus
Entrant 2
Entrant 3
Entrant 4
Entrant 5
Emerging or underdevelopped countries
1 128
3 215
6 363
10 108
14 794
20 426
25 251
4 354
29 543
6 893
2 954
34 028
10 977
5 488
38 678
14 504
9 670
43 465
19 757
14 488
48 361
25 603
19 913
53 339
32 004
25 908
58 375
38 916
32 430
63 442
46 296
39 437
68 519
54 094
46 882
73 584
62 263
54 716
78 615
70 754
62 892
83 751
77 769
67 799
83 034
79 080
67 218
81 795
79 848
66 215
80 242
80 242
64 958
78 420
80 287
63 483
76 372
80 009
61 825
74 135
79 430
60 014
70 035
78 576
59 786
65 930
77 468
59 337
61 854
76 129
58 682
57 838
74 580
57 838
53 904
72 844
56 818
50 074
70 938
55 638
46 364
68 884
54 312
42 787
66 698
52 855
39 355
64 398
51 280
36 074
62 001
49 601
33 199
59 972
48 192
180 000
160 000
Creator Developed
countries
100,0%
140 000
Creator Developed
countries
80,0%
Entrant 1
120 000
Entrant 1
Entrant 2 Emerging or
underdevelopped
countries
100 000
60,0%
Entrant 2 Emerging or
underdevelopped countries
Entrant 3
40,0%
Entrant 4
80 000
Entrant 3
60 000
Entrant 4
20,0%
Entrant 5
40 000
Entrant 5
20 000
225460
264938
304410
341633
373430
395402
377354
324304
263426
196953
64303
-20 000
128641
225460
264938
304410
341633
373430
395402
377354
324304
263426
196953
64303
-
12500
-20,0%
128641
0,0%
12500
2nd pattern
Creator
Entrant 1
Developed countries
100,0%
95,0%
5,0%
90,0%
7,5%
85,0%
10,0%
80,0%
12,5%
75,0%
15,5%
70,0%
18,5%
65,0%
21,5%
60,0%
23,0%
55,0%
25,0%
50,0%
27,0%
45,0%
29,0%
40,0%
30,5%
35,0%
32,0%
30,0%
33,5%
25,0%
35,0%
20,0%
36,5%
15,0%
38,0%
10,0%
39,5%
5,0%
41,0%
0,0%
42,5%
42,0%
41,5%
41,0%
40,5%
40,0%
39,5%
39,0%
38,5%
38,0%
37,5%
37,0%
36,5%
36,0%
35,5%
35,0%
34,5%
34,0%
16 dec. 2013
10

11. The analysis and the patterns presented remain very generic taking into account the multiplicity of
market types. However, a firm intervening on international markets must maintain for each one of its
markets this kind of analysis and clearly define its strategy versus such forces that will naturally
impact on it.
During the market forecast (and follow-up of its evolution), it will be important to correctly understand
the effects of the crises on volumes for durable goods.
Renewal markets.
Example of a market whose tendency is a renewal every 5 years on average with a basic quantity of 1
million unit.
In absence of crisis, the market profile
would be
(in thousands)
Renewal potential
in positive economic cycle
for a total installed base
Market profile:
Year of purchase
Age <2Years
Age <3Years
Age <4Years
Age <5Years
Year nYear n
1
Year
n+1
Year
n+2
Year
n+3
Year
n+4
Year
n+5
Year
n+6
Year
n+7
Year
n+8
Year
n+9
1 000
5000
1 000
5000
1 000
5000
1 000
5000
1 000
5000
1 000
5000
1 000
5000
1 000
5000
1 000
5000
1 000
5000
1 000
5000
1000
1000
1000
1000
1000
1000
1000
1000
1000
1000
1000
1000
1000
1000
1000
1000
1000
1000
1000
1000
1000
1000
1000
1000
1000
1000
1000
1000
1000
1000
1000
1000
1000
1000
1000
1000
1000
1000
1000
1000
1000
1000
1000
1000
1000
1000
1000
1000
1000
1000
1000
1000
1000
1000
1000
16 dec. 2013
11

12. A crisis happening in year N with progressive recovery over 3 years, will involve a drop then a
readjustment of the renewal rate like below (part of the customers delaying their decision of
renewal)
Installed base
Year of purchase
Age <2Years
Age <3Years
Age <4Years
Age <5Years
Age <6 years
Age <7 years
5 000
1000
1000
1000
1000
1000
5 000
600
1000
1000
1000
1000
400
5 000
700
600
1000
1000
1000
300
400
5 000
850
700
600
1000
1000
150
700
5 000
1400
850
700
600
1000
150
300
5 000
1300
1400
850
700
600
150
5 000
750
1300
1400
850
700
0
5 000
700
750
1300
1400
850
5 000
850
700
750
1300
1400
5 000
1400
850
700
750
1300
5 000
1300
1400
850
700
750
The crisis on a market initially stable will involve a disturbance of annual volumes over years. In
fact, the market volumes at a given time will be itself the reflection of last crises.
It is thus necessary to understand:
• How the last crises are reflected year after year,
• How a crisis which arrives will increase the oscillations of the market,
with the aims to anticipate correctly the evolutions to come and to adjust the production and the
sales strategy consequently and with the right timing.
16 dec. 2013
12

13. Investment markets.
Year nYear n
1
Year
n+1
Year
n+2
Year
n+3
Year
n+4
Year
n+5
Year
n+6
Year
n+7
Year
n+8
Year
n+9
Equipment rate progressing by 10% then 5%
55%
50
500
60%
50
550
65%
50
600
70%
50
650
75%
50
700
80%
50
750
85%
50
800
A crise intervening in year n will impact the investments rate in n+1 and n+2 years
but will also create a recovery effect on following years
Yearly quantities
150
30
60
90
130
Cumulated quantities
150
180
240
330
460
90
550
50
600
50
650
50
700
50
750
50
800
Yearly quantities
Cumulated quantities
15%
150
150
25%
100
250
35%
100
350
50%
100
450
The crisis will also disturb the quantities sold over several years.
In practice, a market is never completely an investment or renewal market, it will then
be necessary to combine the two analysis in order to obtain a market forecast which
correctly integrates the effects of crisis on the global market.
16 dec. 2013
13

14. This analysis is necessary and important to understand correctly the market scale
and to make timely decisions.
The danger is, indeed, to make mistake on the reasons for the volume variations and to
take inappropriate decisions or with a wrong timing. Wrong understanding and not
adapting to these ups and down in timely manner will be source of major profitability
impacts. On top that could modify significantly respective market shares of the various
competitors.
The “doctrinal approach” tends to want and to forecast linear volume evolutions on
markets. In practice, for durables goods, up and down effect is the rule taking into
account the fact that economic crises, with more or less important impacts, occur very
regularly (3-5 years).
For consumer goods, effects are rather immediate and the ups and down are much
simpler to understand.
Extract from my book « Globalisation – Adapter l’organisation de son entreprise face à la
mondialisation » EMS Editions
16 dec. 2013
14