Consolidated Industry | Consolidated Industry Vs. Fragmented Industry
What is Consolidated Industry
The consolidated industry refers to the rapid convergence of industries and the decline of competition in those industries. Industries are becoming corporate behemoths, with major players within an industry taking control of the marketplace. The consolidated industry results from both globalization and deregulation, which has led to mergers and acquisitions (M&A).
Industry consolidation is defined as the process that occurs when one or more companies acquire numerous other companies to become one company.
Industry consolidation results from mergers and acquisitions, which are acquisitions of one company by another company. Industry consolidation is usually the result of a successful company’s desire to grow and take on more projects or to take care of more projects.
Industry consolidation typically occurs when an industry becomes highly competitive, and various companies feel the need to maximize their production capabilities by acquiring other companies nearby.
The focus on industry consolidation is to make the process of production easier while also making it more profitable. Industry consolidation is a process that has been happening for years.
There have been many different kinds of industry consolidations over the years, and they each have had different motivations. Some industry consolidations are for economic purposes, while other consolidations are done for political reasons.
In some cases, it is due to the need to become more efficient, and in other cases, it is being done to remain competitive or more efficient.
Ways Companies Can Consolidate
Consolidation is a common thing, and these four areas typically mark it:
- -A merger of two companies
- -A buyout of one company by another
- -Two companies joining forces
- -An acquisition of one company’s stake in another company.
The consolidation process has also made it difficult for small businesses to compete. A recent trend in this consolidation process is that companies are building their own supply chains, which either creates a monopoly or leads to independents outsourcing their manufacturing needs to big corporations.
The result of this process is that large corporations dominate an industry, with small businesses having a very difficult time competing.
Consolidation has been occurring for more than a century and was first noticed in the food industry. As early as 1897, the United States Department of Agriculture (USDA) issued a report showing that consolidation had occurred in the meatpacking industry.
A study released at that time showed that a few companies controlled virtually all of the beef industry through acquisition and other methods. In 1931, the USDA issued another report stating that over 200 meatpacking companies had merged into 50 corporations.
This trend continued into the 1960s and 1970s as industry consolidation intensified. The end of this process was marked by Gary Wendell’s book, “The Competition Policy Controversy,” which was released in 1988.
Consolidation is a natural progression of capitalism and is not typically a result of a change in government policies. The major changes in government policy that have led to the current consolidation process are:
- Legal restrictions on antitrust laws, which have created a pro-business environment
- Globalization, which has eliminated barriers to trade and production and opened up markets, creating new industry opportunities. For example, increased trade with China has allowed many American companies to enter the domestic Chinese market. It also allows local companies to export products made in China to the United States.
- Deregulation, which has made it easier for companies to merge into larger entities. For example, in the 1980s and 1990s, the airline industry was deregulated. This allowed the market leader to dominate their given market. After deregulation, the U.S. government eased restrictions on mergers and acquisitions, which has further accelerated consolidation.
Examples of Consolidated Industry
There are many examples of Consolidated Industry in corporate history. Perhaps the best example is the merger of General Motors and Chrysler in 1988, which resulted in both companies financially struggling. This merger increased the market shares for both companies.
The pharmaceutical industry is one of the most consolidated industries out there. Pharmaceuticals are an industry that many people don’t realize is highly consolidated. One factor in this is the popularity of generic drugs. Another factor is the expected expiration of patents on blockbuster drugs.
Other industries include;
1. The consolidation of the steel industry
2. The consolidation of the banking industry
3. The consolidation of the airline industry
4. The consolidation of the automobile industry
Advantages & Disadvantages of Consolidation
The consolidated industry is a process where business sectors are merged into one company, usually because they are small or losing profits. Consolidated industry can benefit consumers because it can result in lower prices or more products on offer (e.g., through economies of scale), or it could be more favorable to producers because it can help them create a larger company with more assets.
Larger companies have been able to expand their production capacity to increase efficiency and lower costs. This has led to lower prices and higher profit margins. The economies of scale have also allowed large companies to achieve better production values through their ability to purchase large quantities of raw materials, which lowers the cost of production.
Another way that consolidation has made it difficult for small businesses to compete is through outsourcing. Outsourcing has become a very popular method for companies to cut costs and allow an ideal business model.
This deprives smaller companies of obtaining the capital they need to compete. Outsourcing also provides larger companies with the ability to produce goods at a lower cost, making it difficult for small businesses to compete in domestic and international markets.
Small businesses have also been challenged by the shift in business models that involves more buying and selling of products than manufacturing these products. This has forced many small businesses to exit the marketplace because they have been unable to evolve into a business model to buy and sell goods rather than make them.
As more companies have merged together, the market has become less competitive and less diverse. As consolidation has increased in certain industries, the number of smaller companies has decreased. This means that consumers are purchasing fewer products and purchasing from fewer companies that provide a similar product or service.
The result of this is that only two large companies can dominate the market. This leaves consumers with fewer choices which can lead to higher prices and less innovation.
Consolidation has also led to less competition because many of these companies are vertically integrated. This means that many large corporations will develop a supply chain that feeds into their business model, and then they will sell their product or service at the end of the supply chain.
This creates a monopoly or duopoly, where two major players control the whole market. For example, Walmart was originally unable to use its own distribution centers because it was such a small company. Instead, Walmart depended on other companies to provide the transportation of goods, which led to a duopoly as it had limited competition.
Criticisms of Consolidating Industry
This trend of consolidation has many critics. One criticism is that consolidation leads to a less competitive environment and makes it difficult for small businesses to compete. This also reduces the number of businesses offering similar products or services.
Because many of these large companies are vertically integrated, they are able to vertically integrate their supply chains which drains the profits of smaller players in the market and gives them higher profit margins. Many of these smaller businesses end up out of business because they are unable to compete with the larger companies.
Another criticism is that because of this consolidation process, and there has been a loss in innovation and technological advancement. Many corporations have also used their increased power to manipulate the market in their favor, leading to less innovation and a lack of new products and services.
This lack of innovation prevents the consumers from receiving new and improved products or services, leading to a stagnant market and lower quality for consumers.
Some people believe that consolidation is a natural progression of capitalism and will not have as large of an effect on the economy. This is true in markets with less regulation and in countries with more transparency. If the government does not favor one company over another, then there should be a level playing field for all corporations.
Large companies are able to react more quickly to changes in the market because they have more capital to do so than small companies. Many large companies are also run by people who have a wealth of experience in business, and these companies can take advantage of existing technologies to provide better results.
There are also a number of advantages to the establishment of larger corporations. Consolidation has allowed companies to adopt an ideal business model. This model allows large corporations to make large profits, allowing them to survive in a very competitive environment.
Large corporations have also provided lower costs for consumers through economies of scale and improved production values by replacing human labor with digital systems that require less maintenance.
Consolidation is a very useful tool for larger corporations to grow and face the challenges of the evolving marketplace. In many of these cases, it has been beneficial for consumers because they have received more options from which to choose.
Consumers are also more informed about their choices because they can read reviews about different products and services on the Internet, who provided feedback on rating websites, like Yelp, or even watch reviews when purchasing goods or services that they have never used before from companies online. This allows people to make better decisions about what products or services to purchase.
Although consolidation has allowed larger companies to grow and survive in a very competitive market, some disadvantages or negative consequences have also developed due to its use.
Because of the large amount of capital and resources that are required for corporations to maintain such a business model, it naturally lowers salaries in these businesses, which causes profit margins for consumers lower than they would normally be.
Consolidated Industry Vs. Fragmented Industry
Consolidated industries are more efficient in terms of production, distribution, marketing, and labor. Fragmented industries have a higher degree of competition because there is less control over the market.
There are benefits to both types of industries – for example, consolidated industries may be better at producing goods that need to be manufactured on a large scale. In contrast, fragmented industries might produce products with more variety.
The key difference between the two is that consolidated companies can make decisions about their business without much input from outside sources. In contrast, fragmented companies must take into account what consumers want before they make any major changes.
It’s important to note that not all businesses fall neatly into either category – some will have aspects of both.
A good way to think about this distinction is by comparing Walmart (a highly successful company) with your local coffee shop (a small business)